UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☒ Quarterly Report Pursuant to SectionQUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of The Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 20202021
or
☐ Transition Report Pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION  13 or 15(d) of The Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                             tofrom_____________to_____________                             
 
Commission File NumberNumber: 1-7234
 
GP STRATEGIES CORPORATION
(Exact name of Registrantregistrant as specified in its charter)
Delaware52-0845774
(State or other jurisdiction of Incorporation)incorporation or organization )(I.R.S. Employer Identification No.)
70 Corporate Center 
 
11000 Broken Land Parkway, Suite 200,300,ColumbiaMD21044
(Address of principal executive offices)(Zip Code)
 
(443) 367-9600
Registrant’s telephone number, including area code:(443) 367-9600

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareGPXNYSE (New York Stock Exchange)
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒ No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer   ¨Accelerated filer   x
Non-accelerated filer   ¨
Smaller reporting company  ☐Emerging growth company  ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

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

The number of shares outstanding of the registrant’s common stock as of July 21, 202029, 2021 was as follows:
Class Outstanding 
Common Stock, par value $.01 per share 17,068,44317,542,342 






GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
  Page
Part I.
   
Item 1.
   
 
1
   
 
2
  
 
3
4
   
 
65
   
 
7
   
Item 2.
2423
   
Item 3.
36
   
Item 4.
36
   
Part II.
Other Information
3837
   
Item 1.
3837
   
Item 1A.
3837
   
Item 2.
4039
   
Item 6.
4140
   
4241
 


Table of Contents
Part I. Financial Information
Item 1. Financial Statements 
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
June 30, 2020 (Unaudited)December 31, 2019June 30, 2021 (Unaudited)December 31, 2020
AssetsAssets  Assets  
Current assets:Current assets:Current assets:
CashCash$12,097  $8,159  Cash$15,460 $23,076 
Accounts and other receivables, less allowance for credit losses of $1,814 in 2020 and $1,132 in 201999,828  131,852  
Accounts and other receivables, less allowance for credit losses of $2,635 in 2021 and $3,086 in 2020Accounts and other receivables, less allowance for credit losses of $2,635 in 2021 and $3,086 in 2020100,494 110,575 
Unbilled revenueUnbilled revenue40,029  57,229  Unbilled revenue38,254 28,100 
Prepaid expenses and other current assetsPrepaid expenses and other current assets21,272  19,115  Prepaid expenses and other current assets22,537 15,186 
Assets held for saleAssets held for sale40,875 42,463 
Total current assetsTotal current assets173,226  216,355  Total current assets217,620 219,400 
Property, plant and equipmentProperty, plant and equipment24,027  23,746  Property, plant and equipment20,195 20,765 
Accumulated depreciationAccumulated depreciation(18,634) (17,943) Accumulated depreciation(16,315)(16,115)
Property, plant and equipment, netProperty, plant and equipment, net5,393  5,803  Property, plant and equipment, net3,880 4,650 
Operating lease right-of-use assetsOperating lease right-of-use assets23,591  27,251  Operating lease right-of-use assets17,752 20,862 
GoodwillGoodwill165,941  171,563  Goodwill120,483 120,589 
Intangible assets, netIntangible assets, net13,889  16,344  Intangible assets, net4,641 5,656 
Other assetsOther assets11,670  11,586  Other assets9,012 10,619 
$393,710  $448,902   $373,388 $381,776 
Liabilities and Stockholders’ EquityLiabilities and Stockholders’ Equity  Liabilities and Stockholders’ Equity  
Current liabilities:Current liabilities:  Current liabilities:  
Accounts payable and accrued expensesAccounts payable and accrued expenses$72,519  $92,332  Accounts payable and accrued expenses$83,583 $91,572 
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities5,382 5,523 
Deferred revenueDeferred revenue21,529  23,234  Deferred revenue16,511 16,509 
Current portion of operating lease liabilities6,707  7,871  
Liabilities held for saleLiabilities held for sale4,823 5,868 
Total current liabilitiesTotal current liabilities100,755  123,437  Total current liabilities110,299 119,472 
Long-term debtLong-term debt57,650  82,870  Long-term debt8,995 12,748 
Long-term portion of operating lease liabilitiesLong-term portion of operating lease liabilities19,824  22,159  Long-term portion of operating lease liabilities13,878 16,260 
Other noncurrent liabilities12,740  10,522  
Other liabilitiesOther liabilities9,386 9,950 
Total liabilitiesTotal liabilities190,969  238,988  Total liabilities142,558 158,430 
Stockholders’ equity:Stockholders’ equity:  Stockholders’ equity:  
Common stock, par value $0.01 per shareCommon stock, par value $0.01 per share172  172  Common stock, par value $0.01 per share175 173 
Additional paid-in capitalAdditional paid-in capital100,023  102,319  Additional paid-in capital105,696 103,225 
Retained earningsRetained earnings129,328  131,228  Retained earnings142,499 138,296 
Treasury stock at costTreasury stock at cost(1,366) (4,070) Treasury stock at cost0 (25)
Accumulated other comprehensive lossAccumulated other comprehensive loss(25,416) (19,735) Accumulated other comprehensive loss(17,540)(18,323)
Total stockholders’ equityTotal stockholders’ equity202,741  209,914  Total stockholders’ equity230,830 223,346 
$393,710  $448,902  $373,388 $381,776 
See accompanying notes to condensed consolidated financial statements.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
Revenue$106,144  $149,413  $234,425  $288,886  
Cost of revenue90,247  126,454  200,914  244,649  
Gross profit15,897  22,959  33,511  44,237  
General and administrative expenses14,180  15,402  31,464  31,529  
Sales and marketing expenses1,857  1,906  3,696  3,895  
Restructuring charges855  182  855  1,301  
Gain on change in fair value of contingent consideration, net—  627  —  677  
Gain on sale of business—  —  1,064  —  
Operating income (loss)(995) 6,096  (1,440) 8,189  
Interest expense607  1,679  1,585  3,277  
Other income (expense)(189) 102  (689) 88  
Income (loss) before income tax expense(1,791) 4,519  (3,714) 5,000  
Income tax expense (benefit)(1,185) 1,300  (1,814) 1,447  
Net income (loss)$(606) $3,219  $(1,900) $3,553  
Basic weighted average shares outstanding17,144  16,747  17,113  16,710  
Diluted weighted average shares outstanding17,207  16,780  17,162  16,741  
Per common share data:    
Basic earnings (loss) per share$(0.04) $0.19  $(0.11) $0.21  
Diluted earnings (loss) per share$(0.04) $0.19  $(0.11) $0.21  
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Revenue$128,782 $106,144 $243,333 $234,425 
Cost of revenue104,954 90,247 198,064 200,914 
Gross profit23,828 15,897 45,269 33,511 
General and administrative expenses15,442 14,180 30,278 31,464 
Sales and marketing expenses2,562 1,857 5,030 3,696 
Restructuring charges1,763 855 2,462 855 
Loss on change in fair value of contingent consideration0 0 269 0 
Gain (loss) on sale of business(377)0 (377)1,064 
Operating income (loss)3,684 (995)6,853 (1,440)
Interest expense197 607 378 1,585 
Other expense196 189 1,019 689 
Income (loss) before income tax expense (benefit)3,291 (1,791)5,456 (3,714)
Income tax expense (benefit)812 (1,185)1,253 (1,814)
Net income (loss)$2,479 $(606)$4,203 $(1,900)
Basic weighted average shares outstanding17,453 17,144 17,389 17,113 
Diluted weighted average shares outstanding18,321 17,207 18,237 17,162 
Per common share data:    
Basic earnings (loss) per share$0.14 $(0.04)$0.24 $(0.11)
Diluted earnings (loss) per share$0.14 $(0.04)$0.23 $(0.11)
 
See accompanying notes to condensed consolidated financial statements.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
Net income (loss)$(606) $3,219  $(1,900) $3,553  
Foreign currency translation adjustments1,474  (380) (5,681) 1,333  
Comprehensive income (loss)$868  $2,839  $(7,581) $4,886  
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Net income (loss)$2,479 $(606)$4,203 $(1,900)
Foreign currency translation adjustments722 1,474 783 (5,681)
Comprehensive income (loss)$3,201 $868 $4,986 $(7,581)
 
See accompanying notes to condensed consolidated financial statements.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
Three Months Ended June 30, 20202021 and 2019
(Unaudited)2020
(In thousands)

(Unaudited)
Common
stock		Additional
paid-in
capital		Retained
earnings		Treasury
stock
at cost		Accumulated
other
comprehensive
loss		Total
stockholders’
equity		Common
stock		Additional
paid-in
capital		Retained
earnings		Treasury
stock
at cost		Accumulated
other
comprehensive
loss		Total
stockholders’
equity
Balance at March 31, 2020172  100,650  129,934  (1,374) (26,890) 202,492  
Balance at March 31, 2021Balance at March 31, 2021$174 $104,664 $140,020 $0 $(18,262)$226,596 
Net loss—  —  (606) —  —  (606) 
Net incomeNet income— — 2,479 — — 2,479 
Foreign currency translation adjustmentForeign currency translation adjustment—  —  —  —  1,474  1,474  Foreign currency translation adjustment— — — — 722 722 
Repurchases of common stock—  —  —  (1,826) (1,826) 
Stock-based compensation expenseStock-based compensation expense—  772  —  —  —  772  Stock-based compensation expense— 915 — — — 915 
Issuance of stock for employer contributions to retirement planIssuance of stock for employer contributions to retirement plan—  (511) —  1,275  —  764  Issuance of stock for employer contributions to retirement plan— 706 — — — 706 
Net issuances of stock pursuant to stock compensation plans and otherNet issuances of stock pursuant to stock compensation plans and other—  (888) —  559  —  (329) Net issuances of stock pursuant to stock compensation plans and other1 (589)— — — (588)
Balance at June 30, 2020$172  $100,023  $129,328  $(1,366) $(25,416) $202,741  
Balance at June 30, 2021Balance at June 30, 2021$175 $105,696 $142,499 $0 $(17,540)$230,830 


Common stockAdditional paid-in capitalRetained earningsTreasury stock at costAccumulated other comprehensive lossTotal stockholders’ equityCommon stockAdditional paid-in capitalRetained earningsTreasury stock at costAccumulated other comprehensive lossTotal stockholders’ equity
Balance at March 31, 2019172  104,909  116,373  (11,763) (19,977) 189,714  
Net income—  —  3,219  —  —  3,219  
Balance at March 31, 2020Balance at March 31, 2020$172 $100,650 $129,934 $(1,374)$(26,890)$202,492 
Net lossNet loss— — (606)— — (606)
Foreign currency translation adjustmentForeign currency translation adjustment—  —  —  —  (380) (380) Foreign currency translation adjustment— — — — 1,474 1,474 
Repurchases of common stockRepurchases of common stock— — — (1,826)— (1,826)
Stock-based compensation expenseStock-based compensation expense—  602  —  —  —  602  Stock-based compensation expense— 772 — — — 772 
Issuance of stock for employer contributions to retirement planIssuance of stock for employer contributions to retirement plan—  (540) —  1,268  —  728  Issuance of stock for employer contributions to retirement plan— (511)— 1,275 — 764 
Net issuances of stock pursuant to stock compensation plans and otherNet issuances of stock pursuant to stock compensation plans and other—  (784) —  665  —  (119) Net issuances of stock pursuant to stock compensation plans and other— (888)— 559 — (329)
Balance at June 30, 2019172  104,187  119,592  (9,830) (20,357) 193,764  
Balance at June 30 2020Balance at June 30 2020$172 $100,023 $129,328 $(1,366)$(25,416)$202,741 

See accompanying notes to condensed consolidated financial statements.




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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
Six Months Ended June 30, 20202021 and 2019
(Unaudited)2020
(In thousands)

(Unaudited)
Common
stock		Additional
paid-in
capital		Retained
earnings		Treasury
stock
at cost		Accumulated
other
comprehensive
loss		Total
stockholders’
equity		Common
stock		Additional
paid-in
capital		Retained
earnings		Treasury
stock
at cost		Accumulated
other
comprehensive
loss		Total
stockholders’
equity
Balance at December 31, 2019172  102,319  131,228  (4,070) (19,735) 209,914  
Balance at December 31, 2020Balance at December 31, 2020$173 $103,225 $138,296 $(25)$(18,323)$223,346 
Net loss—  —  (1,900) —  —  (1,900) 
Net incomeNet income— — 4,203 — — 4,203 
Foreign currency translation adjustmentForeign currency translation adjustment—  —  —  —  (5,681) (5,681) Foreign currency translation adjustment— — — — 783 783 
Repurchases of common stock—  —  —  (1,826) —  (1,826) 
Stock-based compensation expenseStock-based compensation expense—  1,213  —  —  —  1,213  Stock-based compensation expense— 1,844 — — — 1,844 
Issuance of stock for employer contributions to retirement planIssuance of stock for employer contributions to retirement plan—  (1,573) —  3,152  —  1,579  Issuance of stock for employer contributions to retirement plan1 1,443 — — — 1,444 
Net issuances of stock pursuant to stock compensation plans and otherNet issuances of stock pursuant to stock compensation plans and other—  (1,936) —  1,378  —  (558) Net issuances of stock pursuant to stock compensation plans and other1 (816)— 25 — (790)
Balance at June 30, 2020172  100,023  129,328  (1,366) (25,416) 202,741  
Balance at June 30, 2021Balance at June 30, 2021$175 $105,696 $142,499 $0 $(17,540)$230,830 


Common stockAdditional paid-in capitalRetained earningsTreasury stock at costAccumulated other comprehensive lossTotal stockholders’ equity
Balance at December 31, 2018172  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, 2019172  104,187  119,592  (9,830) (20,357) 193,764  

Common stockAdditional paid-in capitalRetained earningsTreasury stock at costAccumulated other comprehensive lossTotal 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 

See accompanying notes to condensed consolidated financial statements.










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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 20202021 and 20192020
(Unaudited, inIn thousands)
 20202019
Cash flows from operating activities:  
Net income (loss)$(1,900) $3,553  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Gain on change in fair value of contingent consideration, net—  (677) 
Gain on sale of business(1,064) —  
Depreciation and amortization4,254  4,657  
Deferred income taxes(200) (556) 
Non-cash compensation expense2,792  2,419  
Changes in other operating items:  
Accounts and other receivables29,264  (10,528) 
Unbilled revenue15,887  8,266  
Prepaid expenses and other current assets(4,206) (2,449) 
Accounts payable, accrued expenses and net change in operating leases(12,105) (11,772) 
Deferred revenue142  141  
Other(99) 643  
Net cash provided by (used in) operating activities32,765  (6,303) 
Cash flows from investing activities:  
Additions to property, plant and equipment(1,046) (1,027) 
Proceeds from sale of business3,328  —  
Capitalized software development costs and other(45) (227) 
Net cash provided by (used in) investing activities2,237  (1,254) 
Cash flows from financing activities:  
Proceeds from long-term debt81,165  77,050  
Repayment of long-term debt(106,385) (73,900) 
Change in negative cash book balance(2,984) (1,584) 
Repurchases of common stock in the open market(1,826) —  
Other financing activities(412) (402) 
Net cash provided by (used in) financing activities(30,442) 1,164  
Effect of exchange rate changes on cash and cash equivalents(622) (913) 
Net increase (decrease) in cash3,938  (7,306) 
Cash at beginning of period8,159  13,417  
Cash at end of period$12,097  $6,111  
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$1,502  $3,197  
Cash paid (refunded) during the period for income taxes879  (498) 
(Unaudited)
 20212020
Cash flows from operating activities:  
Net income (loss)$4,203 $(1,900)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Loss on change in fair value of contingent consideration269 0 
(Gain) loss on sale of business377 (1,064)
Depreciation and amortization2,959 4,254 
Deferred income taxes(273)(200)
Non-cash compensation expense3,287 2,792 
Changes in other operating items:  
Accounts and other receivables13,542 29,264 
Unbilled revenue(10,399)15,887 
Prepaid expenses and other assets(2,741)(4,206)
Accounts payable, accrued expenses and net change in operating leases(15,436)(12,105)
Deferred revenue(909)142 
Other1,750 (99)
Net cash provided by (used in) operating activities(3,371)32,765 
Cash flows from investing activities:  
Additions to property, plant and equipment(1,009)(1,046)
Proceeds from sale of business419 3,328 
Capitalized software development costs and other0 (45)
Net cash provided by (used in) investing activities(590)2,237 
Cash flows from financing activities:  
Proceeds from long-term debt93,650 81,165 
Repayment of long-term debt(97,401)(106,385)
Change in negative cash book balance(4)(2,984)
Tax withholding payments for employee stock-based compensation in exchange for shares surrendered(790)(114)
Repurchases of common stock in the open market0 (1,826)
Other financing activities0 (298)
Net cash used in financing activities(4,545)(30,442)
Effect of exchange rate changes on cash and cash equivalents890 (622)
Net increase (decrease) in cash(7,616)3,938 
Cash at beginning of period23,076 8,159 
Cash at end of period$15,460 $12,097 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$348 $1,502 
Cash paid during the period for income taxes$2,852 879 
 See accompanying notes to condensed consolidated financial statements.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
June 30, 20202021
(Unaudited)

(1)Basis of Presentation

GP Strategies Corporation is a global performance improvement solutions provider of training, digital learning solutions, management consulting and engineering services.leading workforce transformation partner. References in this report to “GP Strategies,” the “Company,” “we” and “our” are to GP Strategies Corporation and its subsidiaries, collectively.
 
The accompanying condensed consolidated balance sheet as of June 30, 2020,2021, the condensed consolidated statements of operations, comprehensive income (loss) and stockholders' equity for the three and six months ended June 30, 20202021 and 2019,2020, and the condensed consolidated statements of cash flows for the six months ended June 30, 20202021 and 20192020 have not been audited, but have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019,2020, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. 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 20202021 interim period are not necessarily indicative of results to be expected for the entire year.

Effective July 1, 2020, we began managing our business under a new organizational structure on a regional basis through our 3 geographic markets, North America, Europe Middle East Africa (EMEA) and Emerging Markets (Latin America and Asia Pacific countries). These became our reportable segments in the third quarter of 2020. Prior to this change, our reportable segments consisted of 2 global practices, Workforce Excellence and Business Transformation Services, which focused on providing similar and/or complementary products and services across our diverse customer base within target markets. Effective January 1, 2021 as a result of a change in management, we transferred one of our businesses from our North America segment to our EMEA segment. In addition, we realigned some of our businesses between our North America Organizational Performance Solutions (OPS) and North America Technical Performance Solutions (TPS) to more accurately align with their focus industries. 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.
 
The condensed consolidated financial statements include the operations of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

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

Use of Estimates and Assumptions

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

Please refer to Note 1- Significant Accounting Policies of the Notes to Consolidated Financial Statements included in our 20192020 Form 10-K for a discussion of other significant estimates and assumptions affecting our consolidated financial statements.

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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)
(2)Recent Accounting Standards

    Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), which requires companies to record an allowance for expected credit losses over the contractual term of financial assets, including short-term trade receivables and contract assets, and expands disclosure requirements for credit quality of financial assets. We adopted the standard on January 1, 2020 and began recognizing an allowance for credit losses based on the estimated lifetime expected credit loss related to our financial assets, which primarily includes accounts receivable and unbilled revenue. The adoption of Topic 326 did not have a material impact on our consolidated results of operations or financial condition. During the six months ended June 30, 2020, we incorporated the forecasted impact of future economic conditions into our allowance for credit losses measurement process including the expected adverse impact of COVID-19 on the global economy.

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

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

Accounting Standards Not Yet Adopted
In December 2019, the FASBFinancial Accounting Standards Board (FASB) issued ASUAccounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes. The amendmentsguidance issued in this ASU simplifyupdate simplifies the accounting for income taxes by removingeliminating certain exceptions to the generalguidance in Accounting Standards Codification (ASC) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting principlesfor franchise taxes and simplifying other specificenacted changes in tax scenarios.laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. We adopted the standard on January 1, 2021. The new standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are currently assessing thedid not impact that adopting this guidance will have on our consolidated financial statements.
For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the Recent Accounting Standards section in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. These standards are not expected to have a material impact on our results of operations, financial condition or cash flows.


(3)Revenue

Significant Accounting Policy
We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606). Revenue is measured based on the consideration specified in a contract with a customer. Most of our contracts with customers contain transaction prices with fixed consideration, however, some contracts may contain variable consideration in the form of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties and other similar items. When a contract includes variable consideration, we evaluate the estimate of variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. This can result in recognition of revenue over time as we perform services or at a point in time when the deliverable is transferred to the customer, depending on an evaluation of the criteria for over time recognition in ASC Topic 606. Further details regarding our revenue recognition for various revenue streams are discussed below.
Nature of goods and services
Over 90% of our revenue is derived from services provided to our customers for training, consulting, technical, engineering and other services. Less than 10% of our revenue is derived from various other offerings including custom magazine publications and assembly of glovebox portfolios for automotive manufacturers, licenses of software and other intellectual property, and software as a service (SaaS) arrangements.
Our primary contract vehicles are time-and-materials, fixed price (including fixed-fee per transaction), and cost-reimbursable contracts. Each contract has different terms based on the scope, deliverables and complexity of the engagement, requiring us to make judgments and estimates about recognizing revenue.
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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-completioncosts incurred input method based on the relationship of costs incurred to total estimated costs expected to be incurred over the term of the contract. We believe this methodology is a reasonable measure of proportional performance progress to depict the transfer of control to the customer
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Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)
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-completioncosts incurred input 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 toRevenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods on our fixed price contracts in the aggregate resulted in a net decreaseincrease (decrease) to revenue of $0.4$0.3 million and $0.2$(0.4) million for the three months ended June 30, 2021 and 2020, respectively, and 2019 respectively. It also resulted in a net decrease to revenue of $0.5$(0.2) million and a net increase to revenue of $0.9$(0.5) million for the six months ended June 30, 2021 and 2020, and 2019 respectively.

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

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

delivery, as the overtime revenue recognition criteria are not met.
Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that we collect from a customer, are excluded from revenue.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. As of June 30, 2020,2021, we had $327.0$316.2 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 85 percent of our remaining performance obligations as revenue within the next twelve months.


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Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled revenue (contract assets), and deferred revenue (contract liabilities) on the condensed consolidated balance sheet. Amounts charged to our clients become billable according to the contract terms, which usually consider the passage of time, achievement of milestones or completion of the project.
When billings occur after the work has been performed, such unbilled amounts will generally be billed and collected within 60 to 120 days but typically no longer than over the next twelve months. When we advance bill clients prior to the work being performed, generally, such amounts will be earned and recognized in revenue within the next twelve months. These assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the six-month period ended June 30, 20202021 were not materially impacted by any other factors.
We recognized revenue of $3.2$3.8 million and $4.6$3.2 million for the three months ended June 30, 20202021 and 2019,2020, respectively, and $11.4$8.2 million and $15.7$11.4 million for the six months ended June 30, 20202021 and 2019,2020, 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.

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Notes to Condensed Consolidated Financial Statements
June 30, 20202021
(Unaudited)
Disaggregation of 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 ServicesConsolidated
202020192020201920202019
Revenue by type of service:  
Managed learning services$38,326  $44,789  $—  $—  $38,326  $44,789  
Engineering & technical services27,485  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 Africa14,413  18,643  12,451  16,262  26,864  34,905  
Asia Pacific5,586  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 & Insurance16,027  19,931  1,914  2,239  17,941  22,170  
Manufacturing5,858  9,610  2,247  4,580  8,105  14,190  
Energy / Oil & Gas6,078  8,850  878  1,456  6,956  10,306  
U.S. Government10,698  10,060  1,437  1,791  12,135  11,851  
U.K. Government—  —  4,182  4,369  4,182  4,369  
Information & Communication4,795  5,563  566  512  5,361  6,075  
Aerospace6,141  4,684  1,714  3,290  7,855  7,974  
Electronics Semiconductor2,084  3,994  213  439  2,297  4,433  
Life Sciences5,830  5,083  992  1,537  6,822  6,620  
Other7,120  12,460  3,995  3,205  11,115  15,665  
$65,811  $83,903  $40,333  $65,510  $106,144  $149,413  




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NotesSee Note 13 (Business Segments) to these Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
Six Months Ended June 30,
Workforce ExcellenceBusiness Transformation ServicesConsolidated
202020192020201920202019
Revenue by type of service:
Managed learning services$80,824  $89,431  $—  $—  $80,824  $89,431  
Engineering & technical services59,365  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 Africa32,085  37,921  28,612  31,279  60,697  69,200  
Asia Pacific11,031  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 & Insurance35,183  39,137  3,385  4,154  38,568  43,291  
Manufacturing15,016  18,880  5,205  9,598  20,221  28,478  
Energy / Oil & Gas12,353  20,380  2,051  2,484  14,404  22,864  
U.S. Government21,904  19,855  3,019  3,520  24,923  23,375  
U.K. Government—  —  9,449  8,412  9,449  8,412  
Information & Communication8,910  10,869  1,195  971  10,105  11,840  
Aerospace14,437  12,194  2,731  3,393  17,168  15,587  
Electronics Semiconductor4,707  8,124  430  685  5,137  8,809  
Life Sciences10,938  9,977  2,206  3,470  13,144  13,447  
Other13,108  18,699  12,668  10,550  25,776  29,249  
$140,189  $165,381  $94,236  $123,505  $234,425  $288,886  
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Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
for our disaggregated revenues.

(4)Significant Customers & Concentration of Credit Risk

We have a market concentration of revenue in both the automotive sector and financial & insurance sector. Revenue from the automotive sector accounted for approximately 24%25% and 29%24% of our consolidated revenue for the six months ended June 30, 20202021 and 2019,2020, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 13%15% and 14%13% of our consolidated revenue for the six months ended June 30, 20202021 and 2019,2020, respectively. As of June 30, 2020,2021, accounts receivable from a single automotive customer totaled $15.1$20.5 million, or 15%20%, of our consolidated accounts receivable balance.

Revenue from the financial & insurance sector accounted for approximately 16%17% and 15%16% of our consolidated revenue for the six months ended June 30, 20202021 and 2019,2020, respectively. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 9% and 11% of our consolidated revenue for the six months ended June 30, 20202021 and 2019,2020, respectively. As of June 30, 2020,2021, billed and unbilled accounts receivable from a single financial services customer totaled $8.7$9.5 million, or 6%7%, of our consolidated accounts receivable and unbilled revenue balances.

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

No other single customer accounted for more than 10% of our consolidated revenue for the six months ended June 30, 20202021 or 20192020 or consolidated accounts receivable balance as of June 30, 2020.2021.


(5)Earnings (Loss) Per Share

Basic earnings (loss) per share (EPS) is computed by dividing net income (loss) 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: EPS (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
 (In thousands)
Non-dilutive instruments132  181  84  116  
Dilutive common stock equivalents63  33  49  31  
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Non-dilutive instruments0 132 0 84 
Dilutive common stock equivalents868 63 848 49 


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Notes to Condensed Consolidated Financial Statements
June 30, 20202021
(Unaudited)

(6)DivestitureDivestitures and Business Held for Sale

SaleAs of Alternative Fuels Division

Effective January 1, 2020,June 30, 2021, we sold a United Kingdom business outside of our Alternative Fuels Division pursuant to an Asset Purchase Agreement with Cryogenic Industries, LLC.focus industries, which we had previously classified as held for sale. 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 gainrelated assets previously held for sale were primarily composed of $1.1 million net of $1.3operating lease right-of-use assets, $0.3 million direct selling costs,of fixed assets, $0.1 million of goodwill, and $0.1 million of other current assets. The related liabilities held for sale are primarily composed of $1.2 million of operating lease liabilities. We received proceeds on the sale of the business. The gain represents the difference between the purchase price and the carrying valuethis business of the business, which primarily included net working capital of $0.1$0.4 million and goodwillrecorded a loss on the sale of $2.6business of $0.4 million. The Alternative Fuels DivisionTransaction costs related to the sale totaled $0.4 million. This business was part of the Workforce ExcellenceEMEA segment.


As of December 31, 2020, we began the process to sell a business outside of our focus industries and as a result we have classified all of this business' assets and liabilities to held for sale. The sale is expected to occur within 12 months. As of June 30, 2021, the related assets held for sale are primarily composed of $35.9 million of goodwill, $3.2 million of unbilled revenue, and $1.6 million of accounts receivables. The related liabilities held for sale are primarily composed of $4.3 million of deferred revenue and $0.5 million of accounts payable and accrued expense. This business is part of the North America segment.

(7)Intangible Assets

Goodwill

WeGoodwill represents costs in excess of values assigned to the underlying net assets of acquired businesses. Intangible assets acquired are requiredrecorded at estimated fair value. Goodwill is deemed to assess goodwillhave an indefinite life and is not amortized, but is tested for impairment annually orduring the fourth quarter, and at any time when events suggest an impairment more frequently if circumstances indicate impairment may havelikely than not has occurred. We test goodwill at the reporting unit level.
ASC Topic 350, Intangibles - Goodwill and Other (ASC Topic 350), permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.  Under ASC Topic 350, an entity is not required to perform a quantitative goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. Our North America operating segment is comprised of 3 reporting units based on our primary solution sets. The remaining 3 reporting units are our EMEA, Latin America and Asia Pacific operating segments. Effective January 1, 2021 as a result of a change in management, we transferred one of our businesses from our North America segment to our EMEA segment. In addition, we realigned some of our businesses between our North America OPS and North America TPS reporting units to more accurately align with their focus industries. As a result of these changes, we determined a triggering event occurred and performed a quantitative goodwill impairment test. For the annualgoodwill impairment assessment fortest as of January 1, 2021, we concluded that the fair values of each of our reporting units as of October 1stexceeded their respective carrying values.
In the quantitative impairment test, we compare the fair value of each year. The recent developments relatedreporting unit to the COVID-19 pandemic have resulted in uncertainty in the global economy, and declines in equity markets, including our share price. We considered whether such events would indicate that a triggering event have occurred and require an interim goodwill impairment testing. We considered our current projections, our share price in relation to the share price when the quantitative assessment was performed as of October 1, 2019 and the margin by whichits carrying value. If the fair valuesvalue of the reporting units exceeded theirunit exceeds the carrying values. Based on this analysis,value of the Company concludednet assets assigned to that reporting unit, goodwill is not impaired and we are not required to perform further testing. If the current events and circumstances relatedcarrying value of the net assets assigned to the COVID-19 pandemic indicated that a triggering event occurred duringreporting unit exceeds the second quarterfair value of 2020 in the Organizational Developmentreporting unit, then we record an impairment loss equal to the difference, however, the loss recognized would not exceed the total amount of goodwill allocated to the reporting unit. The Company performed a quantitative goodwill impairment test as of June 30, 2020 andWe concluded that each of itsour reporting units'units had excess fair values exceededgreater than their respective carrying values and that there was no indication of impairment. Each of the reporting units had a significant excess fair value over its respective carrying value, with the exception of the Organizational Development reporting unit which had a fair value that exceeded its carrying value by 10% as of the June 30, 2020 testing date. However, if our actual results are lower than projected or our share price remains depressed for a sustained period of time, we could incur material goodwill impairment charges in the future.

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

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Notes to Condensed Consolidated Financial Statements
June 30, 20202021
(Unaudited)

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

Changes in the carrying amount of goodwill by reportable business segment for the six months ended June 30, 20202021 were as follows (in thousands):
Workforce ExcellenceBusiness Transformation ServicesTotal
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  
North AmericaEMEAEmerging MarketsTotal
Balance as of December 31, 2020$83,828 $28,223 $8,538 $120,589 
Divestiture0 (114)0 (114)
Foreign currency translation4 (5)9 8 
Balance as of June 30, 2021$83,832 $28,104 $8,547 $120,483 


Intangible Assets Subject to Amortization

Our intangible assets include amounts recognized in connection with acquisitions, including customer relationships, tradenames, technology and intellectual property. Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise. Except for goodwill, we do not have any intangible assets with indefinite useful lives.
 
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 AmountAccumulated AmortizationNet Carrying Amount Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
June 30, 2020
June 30, 2021June 30, 2021Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Customer relationshipsCustomer relationships$20,425  $(7,589) $12,836  Customer relationships
Intellectual property and otherIntellectual property and other3,475  (2,422) 1,053  Intellectual property and other3,104 (2,748)356 
$23,900  $(10,011) $13,889   $12,580 $(7,939)$4,641 
December 31, 2019   
December 31, 2020December 31, 2020   
Customer relationshipsCustomer relationships$22,348  $(7,473) $14,875  Customer relationships$9,447 $(4,457)$4,990 
Intellectual property and otherIntellectual property and other3,915  (2,446) 1,469  Intellectual property and other3,104 (2,438)666 
$26,263  $(9,919) $16,344   $12,551 $(6,895)$5,656 


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Notes to Condensed Consolidated Financial Statements
June 30, 20202021
(Unaudited)
(8)Stock-Based Compensation

We recognize compensation expense for stock-based compensation awards issued to employees on a straight-line basis over the requisite service period. Compensation cost is based on the fair value of awards as of the grant date.
 
The following table summarizes the pre-tax stock-based compensation expense included in reported net income (in thousands): 
Three months ended June 30,Six months ended June 30,
 2020201920202019
Restricted stock units418  468  529  725  
Board of Directors and other stock grants354  134  684  231  
Total stock-based compensation expense$772  $602  $1,213  $956  

Three months ended June 30,Six months ended June 30,
 2021202020212020
Restricted stock units833 418 1,679 529 
Board of Directors and other stock grants82 354 165 684 
Total stock-based compensation expense$915 $772 $1,844 $1,213 
 
Pursuant to our 2011 Stock Incentive Plan, (the “2011 Plan”), we may grant awards of non-qualified stock options, incentive stock options, restricted stock, stock units, performance shares, performance units and other incentives payable in cash or in shares of our common stock to officers, employees, members of the Board of Directors and other individuals providing services to the Company. As of June 30, 2020,2021, we had restricted and performance stock units outstanding under these plans.


(9)Debt

On November 30, 2018, we entered into a Credit Agreement with PNC Bank, National Association, as administrative agent and a syndicate of lenders (the “Credit Agreement”), replacing the prior credit agreementCredit Agreement with Wells Fargo dated December 21, 2016, as amended on April 28, 2018 and June 29, 2018 (the "Original Credit Agreement"). The Credit agreementAgreement 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 LIBORAdjusted London Inter-bank Offered Rate (LIBOR) 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 Adjusted LIBOR, Rate, plus 100 basis points (1.0%); plus an Applicable Margin. Determination of the Applicable Margin is based on a pricing grid that is generally dependent upon the Company's Leverage Ratio (as defined) as of the end of the fiscal quarter for which consolidated financial statements have been most recently delivered. We may prepay the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions.

The Credit Agreement contains customary representations, warranties and affirmative covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stock dividends, and (vii) certain other restrictive agreements. The Credit Agreement also requires the Company to maintain compliance with the following financial covenants; (i) a maximum leverage ratio, and
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Notes to Condensed Consolidated Financial Statements
June 30, 20202021
(Unaudited)
(ii) a minimum interest expense coverage ratio. On May 7, 2020, we entered into an amendment to the Credit Agreement that increases the maximum leverage ratio we are required to maintain from 3.0 to 1.0 to 3.75 to 1.0 for the fiscal quarters ending June 30, 2020, September 30, 2020 and December 31, 2020, and 3.00 to 1.0 for fiscal quarters ending March 31, 2021 and thereafter, and a minimum interest expense coverage ratio of 3.0 to 1.0. The leverage ratio is computed by dividing our Funded Debt by our Consolidated EBITDA, as those terms are defined in the Credit Agreement, for the trailing four fiscal quarters, and the interest coverage ratio is computed by dividing our Consolidated EBITDA by our Consolidated Interest Expense for the trailing four fiscal quarters. As of June 30, 2020,2021, our leverage ratio was 2.10.3 to 1.0 and our interest expense coverage ratio was 6.419.5 to 1.0, each of which was in compliance with the Credit Agreement. In addition, the amendment to the Credit Agreement reduced the borrowing limit under the credit facility from $200 million to $140 million.

As of June 30, 2020,2021, there were $57.7$9.0 million of borrowings outstanding and $44.9$91.7 million of available borrowings under the revolving loan facility based on our leverage ratio.
 
For the six months ended June 30, 20202021 and 2019,2020, the weighted average interest rate on our borrowings was 3.2%1.6% and 4.7%3.2%, respectively. As of June 30, 2020,2021, 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$0.9 million of unamortized debt issue costs related to the Credit Agreement as of June 30, 20202021 which are being amortized to interest expense over the term of the Credit Agreement and are included in Other assets on our consolidated balance sheet.


(10)Income Taxes

Income tax (benefit) expense was $1.3 million, or an effective income tax rate of 23.0%, for the six months ended June 30, 2021 compared to a benefit of $(1.8) million, or an effective income tax rate of 48.8%, for the six months ended June 30, 2020 compared to $1.4 million, or an effective income2020. The change in the tax rate of 28.9%, for the six months ended June 30, 2019. The decrease in income tax expense was primarily due to changes in the jurisdictional mix of earnings and the tax effects of a decreasean increase 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)(the "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 CaresCARES 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$8.0 million as of June 30, 2020,2021, of which approximately $9.7$4.8 million is included in accounts payable and accrued expenses and $2.6$3.2 million is in other noncurrent liabilities. We continue to monitor any effects that may result from the CARES Act.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law to enact and extend certain tax relief programs as a result of the COVID-19 pandemic. The Act does not contain provisions that have a material impact on income tax expense and the effective tax rate.

An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense. As of June 30, 2020,2021, 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 20162017 through 20192020 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.

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Notes to Condensed Consolidated Financial Statements
June 30, 20202021
(Unaudited)

(11)Stockholders’ Equity

Stock Repurchase Program

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



(12)Restructuring

During the secondfourth quarter of 2020, we initiated a review of restructuring and transition activities to improve operationalthe efficiency reduce costsof our general and better positionadministrative support functions. As part of these activities, we employed a consultant to perform a review and assessment to determine efficiency opportunities. During the company to drive future revenue growth. We recorded severance expensefirst half of $0.9 million for the three months ended June 30, 2020 which is included in restructuring charges on the condensed consolidated statements of operations and which is expected to be paid by the end of 2020. The total remaining liability under these restructuring activities was $0.5 million as of June 30, 2020, which is included in accounts payable and accrued expenses on the condensed consolidated balance sheet. We expect these restructuring2021, we executed various activities to be substantially completedimprove our general and administrative functions and as a result recorded $0.6 million in the second half of 2020. In addition to these restructuring charges, we also incurred $2.4 million of severance expenseconsulting cost during the three months ended June 30, 2020 relating2021, and $1.2 million for the six months ended June 30, 2021. As a result of this review, we incurred $0.3 million in severance costs related to personnel reductions in our general and administrative support functions during the three months ended June 30, 2021, which were mostly paid during the same period. In addition, during the three months ended June 30, 2021, we incurred a $0.9 million impairment cost scaling measures dueas a result of the closure of certain operations in the United Kingdom. During the first quarter of 2021, we permanently closed our body shop operations in Thailand and as result incurred a $0.1 million restructuring cost related to the impactloss on the sale of COVID-19 whichinventory associated with the business. These costs are included in cost of revenue, general & administrative expenses and sales and marketing expensesrestructuring charges on our condensedthe consolidated statements of operations.





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GP STRATEGIES CORPORATION AND SUBSIDIARIES

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

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

Lease expense is included in Cost of Revenue and General & Administrative Expenses on the condensed consolidated statements of operations, and is recorded net of immaterial sublease income. The components of lease expense were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
Operating lease costOperating lease cost$2,355  $2,414  $4,684  $4,871  Operating lease cost$1,683 $2,355 $3,477 $4,684 
Short-term lease costShort-term lease cost102  207  460  560  Short-term lease cost53 102 133 460 
Total lease costsTotal lease costs$2,457  $2,621  $5,144  $5,431  Total lease costs$1,736 $2,457 $3,610 $5,144 


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Notes to Condensed Consolidated Financial Statements
June 30, 20202021
(Unaudited)
Supplemental information related to leases was as follows (dollars in thousands):
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Operating lease right-of-use assetsOperating lease right-of-use assets$23,591  $27,251  Operating lease right-of-use assets$17,752 $20,862 
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities$6,707  $7,871  Current portion of operating lease liabilities$5,382 $5,523 
Non-current portion of operating lease liabilitiesNon-current portion of operating lease liabilities19,824  22,159  Non-current portion of operating lease liabilities13,878 16,260 
Total operating lease liabilitiesTotal operating lease liabilities$26,531  $30,030  Total operating lease liabilities$19,260 $21,783 
Cash paid for amounts included in the measurement of operating lease liabilitiesCash paid for amounts included in the measurement of operating lease liabilities$5,162  $10,137  Cash paid for amounts included in the measurement of operating lease liabilities$3,476 $11,188 
Right-of-use assets obtained in exchange for operating lease liabilitiesRight-of-use assets obtained in exchange for operating lease liabilities$2,206  $4,353  Right-of-use assets obtained in exchange for operating lease liabilities$1,566 $4,523 
Weighted-average remaining lease term for operating leases5.3 years5.5 years
Weighted-average remaining lease term for operating leases (years)Weighted-average remaining lease term for operating leases (years)4.8 years5.6 years
Weighted-average discount rate for operating leasesWeighted-average discount rate for operating leases4.5 %4.7 %Weighted-average discount rate for operating leases3.4 %3.8 %


The following is a reconciliation of future undiscounted cash flows to the operating lease liabilities on our condensed consolidated balance sheet as of June 30, 20202021 (in thousands):
Year ended December 31,Year ended December 31,Year ended December 31,
2020 (excluding the six months ended June 30, 2020)$3,832  
20216,589  
2021 (excluding the six months ended June 30, 2021)2021 (excluding the six months ended June 30, 2021)$3,087 
202220225,352  20225,189 
202320234,295  20234,011 
202420243,929  20243,309 
202520252,844 
ThereafterThereafter6,305  Thereafter2,713 
Total future lease paymentsTotal future lease payments30,302  Total future lease payments21,153 
Less: imputed interestLess: imputed interest(3,771) Less: imputed interest(1,893)
Present value of future lease paymentsPresent value of future lease payments26,531  Present value of future lease payments19,260 
Less: current portion of lease liabilitiesLess: current portion of lease liabilities(6,707) Less: current portion of lease liabilities(5,382)
Long-term lease liabilitiesLong-term lease liabilities$19,824  Long-term lease liabilities$13,878 

During the second quarter of 2021, we disposed of $1.1 million of operating lease right-of-use assets and of $1.2 million of operating lease liabilities in connection with the sale of a United Kingdom operation, respectively.



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GP STRATEGIES CORPORATION AND SUBSIDIARIES(13) Business Segments

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

As of June 30,Effective July 1, 2020, we operatedbegan managing our business under a new organizational structure on a regional basis through 2 reportable business segments: (i) Workforce Excellenceour 3 geographic markets, North America, EMEA and (ii) Business Transformation Services. Our operating segments are aligned by complementary service lines and supported by a business development organization aligned by industry sector. Each ofEmerging Markets. These became our 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. We have 4 reporting units for purposes of goodwill impairment testing, which represent our 4 practices which are one level below the operating segments, as discussed below.

Our 2 segments each consist of 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, managed training administration and logistics, help desk support, event management and vendor management.

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

•Sales Enablement - this practice provides custom product sales training and service technical training, primarily to automotive manufacturers, designed to better educate the customer salesforces as well as the service technicians with respect to new product features and designs, in effect rapidly increasing the salesforce and technicians knowledge base and enabling them to address retail customer needs. Furthermore, this segment helps our clients assess their customer relationship marketing strategy and connect with their customers on a one-to-one basis, including  custom print and digital publications. We have been a custom product sales and service technical training provider and leader in serving manufacturing customers in the U.S. automotive industry for over 40 years.
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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 levelthird quarter 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.
2020. Effective January 1, 2020,2021 as a result of a change in management, we transferred the management responsibility of certain business units between the two operating segments, primarily the managementone of our UK apprenticeship training businessbusinesses from our North America segment to the Organizational Development practice (from the Managed Learning Services practice) and the managementour EMEA segment. In addition, we realigned some of our platform adoption services businessbusinesses between our North America OPS and North America TPS solutions to the Engineering & Technical Services practice (from the Organization Development practice).more accurately align with their focus industries. 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.
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Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)

The reorganization was done to achieve the following:

•Unlock the potential of organic growth to achieve better business results for our clients and the Company.
•Simplify the matrix and empower rapid local decision making in service of our clients.
•Leverage global practice systems, processes, and intellectual property while enabling regional authority to better align and deliver to local client needs.
•Enable efficient use of our corporate infrastructure with regional resources.

Across our regional operating structure, the Company provides Workforce Transformation Services categorized into three primary solution sets:

•Organizational Performance Solutions (OPS) - focus is on managed learning services, digital learning strategies and content development, business consulting, and leadership development solutions

•Technical Performance Solutions (TPS) - focus is on engineering and technical services, enterprise technology adoption and Human Capital Management (HCM) implementation services.

•Automotive Performance Solutions (APS) - provides sales enablement solutions, including custom product sales training and other customer loyalty and marketing related services.

We have also identified four focus industries to deliver these services which include Automotive, Financial Services, Defense and Aerospace and Technology.

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, gain on sale of business, interest expense, other income (expense), and income tax expense.expense (benefit).


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Notes to Condensed Consolidated Financial Statements
June 30, 2021
(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,		Three Months Ended
June 30,		Six Months Ended
June 30,
20202019202020192021202020212020
Revenue:Revenue:    Revenue:    
Workforce Excellence$65,811  $83,903  $140,189  $165,381  
Business Transformation Services40,333  65,510  94,236  123,505  
North AmericaNorth America$82,999 $72,913 $155,328 $157,849 
EMEAEMEA31,831 23,680 61,804 55,578 
Emerging MarketsEmerging Markets13,952 9,551 26,201 20,998 
$106,144  $149,413  $234,425  $288,886   $128,782 $106,144 $243,333 $234,425 
Gross profit:Gross profit:    Gross profit:    
Workforce Excellence$11,402  $13,763  $22,895  $27,218  
Business Transformation Services4,495  9,196  10,616  17,019  
North AmericaNorth America$16,676 $13,527 $31,169 $26,585 
EMEAEMEA4,993 1,393 10,043 5,169 
Emerging MarketsEmerging Markets2,159 977 4,057 1,757 
Total gross profit Total gross profit15,897  22,959  33,511  44,237   Total gross profit23,828 15,897 45,269 33,511 
General and administrative expensesGeneral and administrative expenses14,180  15,402  31,464  31,529  General and administrative expenses15,442 14,180 30,278 31,464 
Sales and marketing expensesSales and marketing expenses1,857  1,906  3,696  3,895  Sales and marketing expenses2,562 1,857 5,030 3,696 
Restructuring chargesRestructuring charges855  182  855  1,301  Restructuring charges1,763 855 2,462 855 
Gain on change in fair value of contingent consideration, net—  627  —  677  
Gain on sale of business—  —  1,064  —  
Loss on change in fair value of contingent considerationLoss on change in fair value of contingent consideration0 0 269 0 
Gain (loss) on sale of businessGain (loss) on sale of business(377)0 (377)1,064 
Operating income (loss)Operating income (loss)(995) 6,096  (1,440) 8,189  Operating income (loss)3,684 (995)6,853 (1,440)
Interest expenseInterest expense607  1,679  1,585  3,277  Interest expense197 607 378 1,585 
Other income (expense)(189) 102  (689) 88  
Income (loss) before income tax expense$(1,791) $4,519  $(3,714) $5,000  
Other expenseOther expense196 189 1,019 689 
Income (loss) before income tax expense (benefit)Income (loss) before income tax expense (benefit)$3,291 $(1,791)$5,456 $(3,714)


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Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
(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 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 pursuant to the Company’s Long Term Incentive Program (“LTIP”) were cancelled. In addition, the Company granted Mr. Greenberg a new award of 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 certain stock price appreciation targets.



















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Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)
Revenue by Category
The following series of tables presents our revenue disaggregated by various categories (dollars in thousands).


Three Months Ended June 30,
North AmericaEMEAEmerging MarketsConsolidated
20212020202120202021202020212020
Revenue by type of service:  
Organizational Performance Solutions$23,482 $22,493 $10,867 $9,171 $7,754 $4,743 $42,103 $36,407 
Technical Performance Solutions35,412 35,199 19,579 13,661 268 107 55,259 48,967 
Automotive Performance Solutions24,105 15,221 1,385 848 5,930 4,701 31,420 20,770 
 $82,999 $72,913 $31,831 $23,680 $13,952 $9,551 $128,782 $106,144 
Revenue by industry focus group:
Automotive$26,927 $17,210 $1,672 $1,495 $6,271 $4,473 $34,870 $23,178 
Financial Services10,031 9,399 6,524 5,283 4,484 3,016 21,039 17,698 
Defense & Aerospace18,261 18,154 773 1,263 0 0 19,034 19,417 
Technology8,135 7,150 1,379 567 162 352 9,676 8,069 
All Other19,645 21,000 21,483 15,072 3,035 1,710 44,163 37,782 
$82,999 $72,913 $31,831 $23,680 $13,952 $9,551 $128,782 $106,144 





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Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)
Six Months Ended June 30,
North AmericaEMEAEmerging MarketsConsolidated
20212020202120202021202020212020
Revenue by type of service:  
Organizational Performance Solutions$46,138 $46,493 $21,556 $22,106 $14,881 $9,855 $82,575 $78,454 
Technical Performance Solutions68,614 75,096 37,608 30,966 457 222 106,679 106,284 
Automotive Performance Solutions40,576 36,260 2,640 2,506 10,863 10,921 54,079 49,687 
 $155,328 $157,849 $61,804 $55,578 $26,201 $20,998 $243,333 $234,425 
Revenue by industry focus group:
Automotive$46,606 $42,173 $3,201 $4,125 $11,822 $10,301 $61,629 $56,599 
Financial Services19,337 19,091 13,008 12,685 8,292 6,380 40,637 38,156 
Defense & Aerospace35,782 38,003 1,912 2,917 0 0 37,694 40,920 
Technology15,057 14,136 2,893 1,345 333 639 18,283 16,120 
All Other38,546 44,446 40,790 34,506 5,754 3,678 85,090 82,630 
$155,328 $157,849 $61,804 $55,578 $26,201 $20,998 $243,333 $234,425 


(14) Contingencies

On July 14, 2021, the Company’s management was notified by the UK Health and Safety Executive (HSE) of possible violations of workplace safety rules by a U.K. subsidiary of GP Strategies, related to workplace injuries suffered in 2019 by an individual working at a site at which the Company was the principal contractor. The HSE has indicated that certain charges are under consideration, although a decision on whether to prosecute has not been made. The Company is working with counsel to respond to the HSE; however, counsel advises that it is likely that charges will be filed. Legal costs will be recognized as incurred. If charges are filed, the burden would be upon the Company to establish compliance with applicable rules. In the event the Company is determined to have violated applicable laws, statutory penalties will be imposed by the court. The Company anticipates that such penalties, if assessed, are unlikely to exceed $1.25 million. Based on the present status of these matters, management believes the range of reasonably possible losses to be $0 to $1.25 million.

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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)
(15) Subsequent Event

On July 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Learning Technologies Group plc, a public limited company incorporated in England and Wales (“LTG”), Learning Technologies Acquisition Corporation, a Delaware corporation and a direct wholly owned subsidiary of LTG (“US Holdco”), and Gravity Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of US Holdco (“Merger Sub”). The Merger Agreement provides, subject to its terms and conditions, for the acquisition of the Company by LTG at a price of $20.85 in cash for each share of the Company’s common stock (each, a “Share”), without interest thereon and subject to deduction for any required withholding tax (the “Merger Consideration”), through the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned, indirect subsidiary of LTG (the “Surviving Corporation”).

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”):

•each Share that is issued and outstanding immediately prior to the Effective Time (other than (i) Shares held in the treasury of the Company or owned by the Company, any subsidiary of the Company, LTG, US Holdco, Merger Sub or any other subsidiary of LTG immediately prior to the Effective Time, all of which will be canceled, and (ii) Shares held by stockholders who do not vote in favor of the Merger and who properly exercise their appraisal rights under, and comply in all respects with applicable provisions of, Delaware law) will be automatically cancelled and converted into the right to receive the Merger Consideration;

•each restricted stock unit granted by the Company that is subject only to time-based vesting conditions and is outstanding and unvested at the Effective Time will automatically be cancelled and converted into the right to receive from the Surviving Corporation an amount of cash equal to the product of (a) the number of Shares then underlying such restricted stock unit, multiplied by (b) the Merger Consideration; and

•each restricted stock unit granted by the Company that is subject to performance-based vesting conditions and is outstanding and unvested at the Effective Time will automatically be cancelled and converted into the right to receive from the Surviving Corporation an amount of cash equal to the product of (a) the number of Shares that vest upon a “Sale of the Company” (as defined in the GP Strategies Corporation 2021 Long-Term Incentive Program) pursuant to the terms of the grant of such restricted stock unit, multiplied by (b) the Merger Consideration.
•Pursuant to the Merger Agreement, the GP Strategies Corporation 2011 Stock Incentive Plan will be terminated immediately prior the Effective Time, and participants in the GP Strategies Corporation 2011 Stock Incentive Plan will not have any rights thereunder following the Effective Time, except for the right to receive the payments described above.

Completion of the Merger is subject to customary closing conditions, including (i) adoption of the Merger Agreement by the Company’s stockholders (the “Stockholder Approval”), (ii) the absence of governmental orders, stays, decrees, judgments or injunctions, and of statutes, rules or regulations, prohibiting the Merger, (iii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and (iv) clearance of the Merger by the Committee on Foreign Investment in the United States. In addition, the obligation of each of the Company and LTG to consummate the Merger is conditioned upon, among other things, the accuracy of the representations and warranties of the other (subject to certain materiality exceptions), and material compliance by the other with its covenants under the Merger Agreement. LTG’s obligation to consummate the Merger is also conditioned upon there not occurring after the date of the Merger Agreement any effect, development, circumstance or change that has, or would reasonably be expected to have, a “Company Material Adverse Effect” (as defined in the Merger Agreement) and upon the admission of the new ordinary shares of LTG to be issued in connection with the Share Issue (as hereinafter defined) to trading on the Alternative Investment Market operated by the London Stock Exchange.

The Merger Agreement contains representations and warranties and covenants of the parties customary for a transaction of this nature. Until the earlier of the termination of the Merger Agreement and the Effective Time, the Company has agreed to operate its business in the ordinary course of business and has agreed to certain other operating covenants and to not take certain specified actions prior to the consummation of the Merger, as set forth more fully in the Merger Agreement. The Company has also agreed to convene and hold a meeting of its stockholders for the purpose of obtaining the Stockholder Approval. In addition, the Merger Agreement requires that, subject to certain exceptions, the Board of Directors (the “Board”) recommend that the Company’s stockholders adopt the Merger Agreement.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(Unaudited)
The Merger Agreement contains certain termination rights for the Company and LTG, including, among others, the right of (i) the Company to terminate the Merger Agreement prior to receipt of the Stockholder Approval, if the Company receives an alternative acquisition proposal that constitutes a “Superior Proposal” (as defined in the Merger Agreement), the Company complies with it covenants in the Merger Agreement relating to such proposal, and, substantially concurrently with termination, the Company pays a termination fee to LTG and enters into a definitive agreement to consummate such proposal and (ii) LTG to terminate the Merger Agreement if the Board changes its recommendation with respect to the Merger Agreement.

The Merger Agreement also provides that under specified circumstances, the Company may be required to pay LTG a termination fee of $12,000,000 or reimburse LTG for its expenses incurred in connection with the merger agreement and the merger up to a maximum of $1,200,000, or LTG may be obligated to pay GP Strategies a termination fee of $12,000,000 plus reimbursement of GP Strategies’ expenses incurred during fiscal year 2021 in connection with the merger agreement, up to $5,000,000 (or, if lower, the difference of 1% of LTG’s market capitalization as of the date of termination minus $12,000,000).

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

We areGP Strategies is a globalleading workforce transformation partner. The company provides custom workforce performance improvement solutions providerfor all levels 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.an organization. We believe our transformation focus, combined with a customer-centric approach, industry innovation and workforce expertise help clients achieve superior business and operational results by enabling higher levels of workforce effectiveness. For over 50 years, we are a global leader in performance improvement, with over five decades of experience inhave been providing solutions to optimize workforce performance. Our solutions include business consulting, leadership development, learning strategies & solutions, managed learning services, sales solutions, technology implementation & adoption solutions, and technical services.

We believe we are at our best when driving innovation—integrating leading technologies, developing new learning paradigms, and instituting fresh business processes and measurement approaches.

We built our workforce transformation business through internal growth and the acquisition of complementary businesses. Since 2006, we have completed over 30 acquisitions to strengthen our capabilities in specific service areas, expanded our global presence, and increased our customer base and market sector reach.  As a result, we have added product sales training and leadership training, and strengthened our digital learning and content development expertise, while also expanding further internationally. Our acquisitions have expanded our market sector reach, added new customers and enhanced our service offerings through the addition of new complementary services. We also invested in global expansion through the establishment of over twenty new subsidiaries in select countries since 2013 to support new global outsourcing contracts. We believe our expanded infrastructure and the ability to deliver globally will allow us to better support our existing client base as well as win new business for our comprehensive service offerings.

Recent Developments

On July 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Learning Technologies Group plc, a public limited company incorporated in England and Wales (“LTG”), Learning Technologies Acquisition Corporation, a Delaware corporation and a direct wholly owned subsidiary of LTG (“US Holdco”), and Gravity Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of US Holdco (“Merger Sub”). The Merger Agreement provides, subject to its terms and conditions, for the acquisition of the Company by LTG at a price of $20.85 in cash for each share of the Company’s common stock (each, a “Share”), without interest thereon and subject to deduction for any required withholding tax (the “Merger Consideration”), through the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned, indirect subsidiary of LTG (the “Surviving Corporation”).

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”):

•each Share that is issued and outstanding immediately prior to the Effective Time (other than (i) Shares held in the treasury of the Company or owned by the Company, any subsidiary of the Company, LTG, US Holdco, Merger Sub or any other subsidiary of LTG immediately prior to the Effective Time, all of which will be canceled, and (ii) Shares held by stockholders who do not vote in favor of the Merger and who properly exercise their appraisal rights under, and comply in all respects with applicable provisions of, Delaware law) will be automatically cancelled and converted into the right to receive the Merger Consideration;

•each restricted stock unit granted by the Company that is subject only to time-based vesting conditions and is outstanding and unvested at the Effective Time will automatically be cancelled and converted into the right to receive from the Surviving Corporation an amount of cash equal to the product of (a) the number of Shares then underlying such restricted stock unit, multiplied by (b) the Merger Consideration; and

•each restricted stock unit granted by the Company that is subject to performance-based vesting conditions and is outstanding and unvested at the Effective Time will automatically be cancelled and converted into the right to receive from the Surviving Corporation an amount of cash equal to the product of (a) the number of Shares that vest upon a “Sale of the Company” (as defined in the GP Strategies Corporation 2021 Long-Term Incentive Program) pursuant to the terms of the grant of such restricted stock unit, multiplied by (b) the Merger Consideration.

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Pursuant to the Merger Agreement, the GP Strategies Corporation 2011 Stock Incentive Plan will be terminated immediately prior the Effective Time, and participants in the GP Strategies Corporation 2011 Stock Incentive Plan will not have any rights thereunder following the Effective Time, except for the right to receive the payments described above.

Completion of the Merger is subject to customary closing conditions, including (i) adoption of the Merger Agreement by the Company’s stockholders (the “Stockholder Approval”), (ii) the absence of governmental orders, stays, decrees, judgments or injunctions, and of statutes, rules or regulations, prohibiting the Merger, (iii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and (iv) clearance of the Merger by the Committee on Foreign Investment in the United States. In addition, the obligation of each of the Company and LTG to consummate the Merger is conditioned upon, among other things, the accuracy of the representations and warranties of the other (subject to certain materiality exceptions), and material compliance by the other with its covenants under the Merger Agreement. LTG’s obligation to consummate the Merger is also conditioned upon there not occurring after the date of the Merger Agreement any effect, development, circumstance or change that has, or would reasonably be expected to have, a “Company Material Adverse Effect” (as defined in the Merger Agreement) and upon the admission of the new ordinary shares of LTG to be issued in connection with the Share Issue (as hereinafter defined) to trading on the Alternative Investment Market operated by the London Stock Exchange.

The Merger Agreement contains representations and warranties and covenants of the parties customary for a transaction of this nature. Until the earlier of termination of the Merger Agreement and the Effective Time, the Company has agreed to operate its business in the ordinary course of business in all material respects and has agreed to certain other operating covenants and to not take certain specified actions prior to the consummation of the Merger, as set forth more fully in the Merger Agreement. The Company has also agreed to convene and hold a meeting of its stockholders for the purpose of obtaining the Stockholder Approval. In addition, the Merger Agreement requires that, subject to certain exceptions, the Board of Directors (the “Board”) recommend that the Company’s stockholders adopt the Merger Agreement.

The Merger Agreement contains certain termination rights for the Company and LTG, including, among others, the right of (i) the Company to terminate the Merger Agreement prior to receipt of the Stockholder Approval, if the Company receives an alternative acquisition proposal that constitutes a “Superior Proposal” (as defined in the Merger Agreement), the Company complies with it covenants in the Merger Agreement relating to such proposal, and, substantially concurrently with termination, the Company pays a termination fee to LTG and enters into a definitive agreement to consummate such proposal and (ii) LTG to terminate the Merger Agreement if the Board changes its recommendation with respect to the Merger Agreement.

The Merger Agreement also provides that under specified circumstances, the Company may be required to pay LTG a termination fee of $12,000,000 or reimburse LTG for its expenses incurred in connection with the merger agreement and the merger up to a maximum of $1,200,000, or LTG may be obligated to pay GP Strategies a termination fee of $12,000,000 plus reimbursement of GP Strategies’ expenses incurred during fiscal year 2021 in connection with the merger agreement, up to $5,000,000 (or, if lower, the difference of 1% of LTG’s market capitalization as of the date of termination minus $12,000,000).

Business Update Related to COVID-19 Pandemic

In March 2020, the World Health Organization declared the Coronavirus (COVID-19)COVID-19 a pandemic. During the first half of 2020 and throughThrough 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. WeDuring the year ending December 31, 2020, 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
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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 engineeringtechnical consulting 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, 20202021 was approximately a $32.5 million and $44.0 million, respectively, decrease as compared toat least $7.0 million. With the same periods in 2019. We expect to continue to experience year over year revenue declines in the second halfcontinued rollout 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,vaccines, 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.

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In addition, the Company has taken various actions to maintain liquidity in response to the potential impactsnegative effects 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 fordecline sequentially over the remainder of 2020. As2021, but there may be regions, industries or our business lines that would be more significantly affected than others during this period. The emergence of 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 regionsvariants of the world where we operate. Tax payment deferrals provided for undervirus may counter the Cares Act resultedbenefits from vaccination efforts in liabilities for deferred payroll tax payments and other deferred tax payments under other government relief programs in differentcertain 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.particularly regions with lower vaccination rates.

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,Effective July 1, 2020, we operated through two reportable business segments: (i) Workforce Excellence and (ii) Business Transformation Services. Our operating segments are aligned by complementary service lines and supported by a business development organization aligned by industry sector. Each of our two reportable segments represents an operating segment under ASC Topic 280, Segment Reporting. We test our goodwill at the reporting unit level, or one level below an operating segment, under ASC Topic 350, Intangibles - Goodwill and Other. We have four reporting units for purposes of goodwill impairment testing, which represent our four practices which are one level below the operating segments, as discussed below.

Our two segments each consist of two global practice areas which are focused on providing similar and/or complementary products and services across our diverse customer base and within targeted markets. Within each practice are various service lines having specific areas of expertise. Marketing and communications, sales, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned by industry sector to support existing customer accounts and new customer development across both segments. Further information regardingbegan managing 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 focusesunder a new organizational structure 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
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facilitation and delivery, managed training administration and logistics, help desk support, event management and vendor management.

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

Business Transformation Services. The Business Transformation Services segment works with organizations to execute complex business strategies by linking business systems, process3 geographic markets, North America, EMEA and people’s performance to clearEmerging Markets (Latin America and measurable results. We have a holistic methodology to establishing direction and closing the gap between strategy and execution.  Our approach equips business leaders and teams with the tools and capability to deliver high-performance results. This segment consists of two practices:

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

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

Asia Pacific countries). Effective January 1, 2020,2021 as a result of change in management, we transferred the management responsibility of certain business units between the two operating segments, primarily the managementone of our UK apprenticeship training businessbusinesses from our North America segment to the Organizational Development practice (from the Managed Learning Services practice) and the managementour EMEA segment. In addition, we realigned some of our platform adoption services business between our North America OPS and North America TPS solutions to the Engineering & Technical Services practice (from the Organization Development practice).more accurately align with their focus industries. 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.

The reorganization was done to achieve the following:

•Unlock the potential of organic growth to achieve better business results for our clients and the Company.
•Simplify the matrix and empower rapid local decision making in service of our clients.
•Leverage global practice systems, processes, and intellectual property while enabling regional authority to better align and deliver to local client needs.
•Enable efficient use of our corporate infrastructure with regional resources.

Across our regional operating structure, the Company provides Workforce Transformation Services categorized into three primary solution sets:

•Organizational Performance Solutions (OPS) - focus is on managed learning services, digital learning strategies and content development, business consulting, and leadership development solutions

•Technical Performance Solutions (TPS) - focus is on engineering and technical services, enterprise technology adoption and HCM implementation services.

•Automotive Performance Solutions (APS) - provides sales enablement solutions, including custom product sales training and other customer loyalty and marketing relates services.

We have also identified four focus industries to deliver these services which include Automotive, Financial Services, Defense and Aerospace and Technology. Our three reportable segments are comprised of four operating segment under ASC Topic 280, Segment Reporting.




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Significant Events

Divestiture

As of June 30, 2021, we sold a United Kingdom business outside of our focus industries, which we had previously classified as held for sale. The related assets previously held for sale were primarily composed of $1.1 million of operating lease right-of-use assets, $0.3 million of fixed assets, $0.1 million of goodwill, and $0.1 million of other current assets. The related liabilities held for sale are primarily composed of $1.2 million of operating lease liabilities. We received proceeds on the sale of this business of $0.4 million and recorded a loss on the sale of business of $0.4 million. Transaction costs related to the sale totaled $0.4 million. This business was part of the EMEA segment.

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. As of March 31, 2021, this is not expected to be achieved and the loss on contingent consideration is reflected on the condensed consolidated statement of operations for the quarter. 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 ExcellenceNorth America segment.



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Operating Highlights
 
Three Months endedended June 30, 20202021 Compared to the Three Months ended June 30, 20192020
 
Our revenue decreased $43.3increased $22.6 million, or 29.0%21.3%, during the second quarter of 20202021 compared to the second quarter of 2019.2020. The net decreaseincrease is due to a $18.1$10.1 million decreaseincrease in our Workforce ExcellenceNorth America segment, a $8.2 million increase in our EMEA segment and a $25.2$4.4 million decreaseincrease in our Business Transformation Services segment. We estimate thatEmerging Markets segment. Excluding the impacteffects of COVID-19 resulted in an approximately $32.5 million decrease indivestitures, and foreign currency exchange rate changes, our revenue inincreased $21.8 million for the second quarter of 20202021 compared to the second quarter of 2019 primarily due to the postponement of certain training events and other delays in client projects. In addition, our2020. Our revenue decreased $4.6$2.9 million during the second quarter of 20202021 due to discontinueda divested revenue streamsstream resulting from the sale of our alternative fuels division on January 1, 2020 and the sale of our tuition program management businessIC Axon Division on October 1, 2019. In addition,2020. The foreign currency exchange rate changes resulted in a total $1.8$3.7 million decreaseincrease in U.S. dollar reported revenue during the second quarter of 2020.2021. 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 $7.1increased $4.7 million or 116.3%to operating income of $3.7 million for the second quarter of 2021 compared to an operating loss of $1.0 million for the second quarter of 2020 compared to operating income of $6.1 million for the second quarter of 2019.2020. The net decreaseincrease is primarily due to a $7.1$7.9 million decreaseincrease in gross profit resulting from increased revenue and operating restructuring initiatives and our margin expansion focus implemented in fiscal year 2020. This increase was partially offset by a $1.3 million increase in general and administrative expenses, a $0.9 million increase in restructuring charges, a $0.7 million increase in restructuring charges,sales and marketing expenses and a $0.6$0.4 million gainloss on the changesale of a business in fair valuethe United Kingdom in the second quarter of contingent consideration in 2019 that did not recur in 2020, partially offset by a $1.2 million decrease in general and administrative expenses.2021.

For the three months ended June 30, 2020,2021, we had a loss before income tax expense of $1.8 million compared to income before income tax expense of $4.5$3.3 million compared to a loss before income tax benefit of $1.8 million for the three months ended June 30, 2019.2020. Net lossincome was $0.6$2.5 million, or $(0.04)$0.14 earnings per diluted share, for the three months ended June 30, 2020,2021, compared to a net incomeloss of $3.2$0.6 million, or $0.19a $(0.04) loss per diluted share, for the three months ended June 30, 2019.2020. Diluted weighted average shares outstanding were 18.3 million for the second quarter of 2021 compared to 17.2 million for the second quarter of 2020 compared to 16.8 million for the second quarter of 2019.2020.
 

Revenue
(Dollars in thousands)Three months ended
 June 30,
 20202019
Workforce Excellence$65,811  $83,903  
Business Transformation Services40,333  65,510  
 $106,144  $149,413  


Workforce Excellence






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Revenue
(Dollars in thousands)Three months ended
 June 30,
 20212020
North America$82,999 $72,913 
EMEA31,831 23,680 
Emerging Markets13,952 9,551 
 $128,782 $106,144 

North America revenue decreased $18.1increased $10.1 million, or 21.6%13.8%, during the second quarter of 20202021 compared to the second quarter of 2019.2020. The revenue decreaseincrease is primarily 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 $4.6$3.3 million net decreaseincrease in revenueour OPS practice primarily due to discontinued revenue streams fromour managed learning services and content development businesses;
•a $0.1 million increase in our TPS practice;
•a $8.9 million increase in our APS practice primarily due to the timing of shipment of publication deliverables;
•a $2.9 million decrease due to the divestiture of our alternative fuels division on January 1, 2020 and tuition program management businessIC Axon Division on October 1, 2019;
•$0.7 million net decrease in our Engineering & Technical Services practices primarily due to project completions for government clients;2020; and
•a $1.3$0.7 million net decreaseincrease in revenue due to changes in foreign currency exchange rates.
These decreases were offset by a $1.7 million net increase inEMEA 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$8.2 million, or 38.4%34.4%, during the second quarter of 20202021 compared to the second quarter of 2019.2020. The revenue decreaseincrease is primarily due to the following:

•a $0.7 million increase in our OPS practice primarily due to an increase in managed learning services;
•a $19.3$4.2 million decrease in revenue due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;
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•a $4.9 million net decreaseincrease in our Sales EnablementTPS practice primarily due to a decline in automotive sales training due to project completions;our platform adoption services and engineering services;
•a $0.5 million net decreaseincrease in our Organization DevelopmentAPS practice primarily due to a declineincreases in leadership development and strategic consulting services;automotive services in our middle east region; and
•a $0.5$2.8 million net decreaseincrease in revenue due to changes in foreign currency exchange rates.
Emerging Markets revenue increased $4.4 million, or 46.1%, during the second quarter of 2021 compared to the second quarter of 2020. The revenue increase is due to the following:

•a $2.8 million increase in our OPS practice primarily due to increases in managing learning services in our APAC region;
•a $0.2 million increase in our TPS practice;
•a $1.2 million increase in our APS practice primarily due to an increase of $0.7 million in our APAC region and an increase of $0.5 million in our LATAM region; and
•a $0.2 million increase in revenue due to changes in foreign currency exchange rates.
Gross Profit
(Dollars in thousands)Three months ended
 June 30,
 20202019
  % Revenue % Revenue
Workforce Excellence$11,402  17.3 %$13,763  16.4 %
Business Transformation Services4,495  11.1 %9,196  14.0 %
 $15,897  15.0 %$22,959  15.4 %
(Dollars in thousands)Three months ended
 June 30,
 20212020
  % Revenue % Revenue
North America$16,676 20.1 %$13,527 18.6 %
EMEA4,993 15.7 %1,393 5.9 %
Emerging Markets2,159 15.5 %977 10.2 %
 $23,828 18.5 %$15,897 15.0 %
 
Workforce ExcellenceNorth America gross profit of $11.4$16.7 million, or 17.3%20.1%, of revenue for the second quarter of 2020 decreased2021 increased by $2.4$3.1 million, or 17.2%23.3%, compared to gross profit of $13.8$13.5 million, or 16.4%18.6%, of revenue for the second quarter of 2019 primarily due to 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 second quarter of 2020.

Business Transformation ServicesEMEA gross profit of $4.5$5.0 million, or 11.1%15.7%, of revenue for the second quarter of 2020 decreased2021 increased by $4.7$3.6 million, or 51.1%258.4%, compared to gross profit of $9.2$1.4 million, or 14.0%5.9%, of revenue for the second quarter 2019 primarily due to the COVID-19 related2020.

Emerging Markets gross profit of $2.2 million, or 15.5% ,of revenue decreases noted above. In addition, we incurred severance expense of $1.0 million in this segment which is included in cost of revenue duringfor the second quarter of 2021 increased by $1.2 million, or 121.0%, compared to gross profit of $1.0 million, or 10.2%, of revenue for the second quarter 2020.

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The improved margins in all our business segments was the result of increasing revenues, restructuring activities and strategic focus on margin expansion.

General and Administrative Expenses
 
General and administrative expenses decreased $1.2increased $1.3 million, or 7.9%8.9%, from $14.2 million in the second quarter of 2020 to $15.4 million in the second quarter of 2019 to $14.2 million in the second quarter of 2020.2021. The decrease in general and administrative expensesincrease is primarily due to a $1.8 million increase in legal fees and $0.5 million increase in outside accounting fees partially offset by a $0.6 million decrease in bad debt, a $0.5 million decrease in amortization expense resulting from the sale of the IC Axon Division and a $0.3 million reduction in labor and benefits expense and lower overall spending due to the COVID-19 related shutdowns.expenses resulting from restructuring initiatives.

Sales and Marketing Expenses

Sales and marketing expenses were consistent atincreased $0.7 million, or 38.0%, from $1.9 million for bothin the second quartersquarter of 2020 and 2019.to $2.6 million in the second quarter of 2021 due to increased marketing efforts compared to a pause in activities in the second quarter of 2020 due to the COVID-19 disruption.

Restructuring Charges
 
During the second quarter of 2021, we continued to execute various activities to improve our general and administrative functions and as a result we incurred $0.6 million of consulting costs. As a result of this review, we incurred $0.3 million in severance costs related to personnel reductions in our general and administrative support functions. In addition, we incurred a $0.9 million impairment cost as a result of the closure of certain operations in the United Kingdom.

During the second quarter of 2020, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth. We recorded severance expense of $0.9 million for the three months ended June 30, 2020 which is included in restructuring charges on the condensed consolidated statements of operations and which is expected to be paid by the end of 2020. During the second quarter of 2019, we incurred $0.2 million of restructuring charges in connection with the TTi Global acquisition.

Change in Fair ValueLoss on sale of Contingent Considerationbusiness

During the second quarterAs of 2019, the net gainJune 30, 2021, we sold a United Kingdom business outside of our focus industries, which we had previously classified as held for sale. The related assets previously held for sale were primarily composed of $1.1 million of operating lease right-of-use assets, $0.3 million of fixed assets, $0.1 million of goodwill, and $0.1 million of other current assets. The related liabilities held for sale were primarily composed of $1.2 million of operating lease liabilities. We received proceeds on the change in fair valuesale of contingent considerationthis business of $0.4 million and recorded a loss on the sale of business of $0.4 million. Transaction costs related to acquisitionsthe sale totaled $0.4 million. This business was $0.6 million. Forpart of the three months ended June 30, 2020, we didn't have any outstanding contingent consideration liabilities related to prior acquisitions.EMEA segment.

Interest Expense
 
Interest expense was $0.2 million for the second quarter of 2021 compared to $0.6 million for the second quarter of 2020 compared to $1.7 million for the second quarter of 2019.2020. The decrease is due to lower borrowings and interest rates under the Company's credit facility as compared to the second quarter of 2019.2020.
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Other Income (Expense)Expense
 
Other expense wasexpenses were $0.2 million for the second quarter of 2021 and 2020 compared to other income of $0.1 million for the second quarter of 2019. The increase in other expense is primarily due to a $0.2 million increase in foreign currency losses in the second quarter of 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.respectively.
Income Tax Expense (Benefit)
 
We had an income tax benefitexpense of $1.2$0.8 million for the second quarter of 20202021 compared to an income tax expensebenefit of $1.3$(1.2) million for the second quarter of 2019.2020. The effective income tax rate was 66.2%24.7% and 28.8%66.2% for the three months ended June 30, 20202021 and 2019,2020, respectively. The changedecrease in tax rate was primarily due to changes in the jurisdictional mix of earnings and the tax effects of a decreasean increase 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.

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Six Months ended June 30, 20202021 Compared to the Six Months ended June 30, 20192020
 
Our revenue decreased $54.5increased $8.9 million, or 18.9%3.8%, during the six months ended June 30, 20202021 compared to the six months ended June 30, 2019.2020. The net decreaseincrease in revenue is due to a $25.2$6.2 million increase in our EMEA segment and a $5.2 million increase in our Emerging Markets segment partially offset by a $2.5 million decrease in our Workforce Excellence segmentNorth America segment. Excluding the effects of foreign currency exchange rate changes, COVID-19 and divestitures, our revenue increased $14.8 million for the six months ended June 30, 2021 compared to the same period of 2020. Foreign currency exchange rate changes resulted in a $29.3total $6.8 million decreaseincrease in our Business Transformation Services segment.U.S. dollar reported revenue during the six months ended June 30, 2021. We estimate that the impact of COVID-19 resulted in an approximately $44.0$7.0 million decrease in our revenue in the six months ended June 30, 20202021 compared to the same period of 2019 primarily due to the postponement of certain training events and other delays in client projects.2020. In addition, our revenue decreased $8.6$5.7 million during the six months ended June 30, 20202021 due to discontinueda divested revenue streamsstream resulting from the sale of our alternative fuels division on January 1, 2020 and the sale of our tuition program management businessIC Axon Division on October 1, 2019. Foreign currency exchange rate changes resulted in a total $2.4 million decrease in U.S. dollar reported revenue during the six months ended June 30, 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 $9.6increased $8.3 million or 117.6% to an operating lossincome of $1.4$6.9 million for the six months ended June 30, 20202021 compared to an operating incomeloss of $8.2$(1.4) million for the same period in 2019.2020. The net decreaseincrease in operating income is primarily due to a $10.7$11.8 million net decreaseincrease in gross profit and a $0.7$1.2 million gaindecrease in general and administrative expenses partially offset by a $1.3 million increase in sales and marketing expenses, a $1.6 million increase in restructuring cost, a $0.3 million loss on change in fair value of contingent considerationconsideration. In addition, we incurred a $0.4 million loss on the sale of a business in 2019 that did not recurthe United Kingdom in 2020, partially offset bythe six months ended June 30, 2021 compared to a $1.1 million gain on the sale of the alternativeour Alternative fuels businessDivision in 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 $0.4 million decrease in restructuring costs.six months ended June 30, 2020.

For the six months ended June 30, 2020,2021, we had a loss before income taxes of $3.7 million compared to income before income taxes of $5.0$5.5 million compared to a loss before income tax benefit of $(3.7) million for the six months ended June 30, 2019.2020. Net income was $4.2 million, or $0.23 per diluted share, for the six months ended June 30, 2021, compared to a net loss was $1.9of $(1.9) million, or $(0.11) per diluted share, for the six months ended June 30, 2020, compared to net income of $3.6 million, or $0.21 per diluted share, for the six months ended June 30, 2019.2020. Diluted weighted average shares outstanding were 17.218.2 million and 16.717.2 million for the six months ended June 30, 20202021 and 2019, respectively.

Revenue
(Dollars in thousands)Six months ended
 June 30,
 20202019
Workforce Excellence$140,189  $165,381  
Business Transformation Services94,236  123,505  
 $234,425  $288,886  
Revenue
(Dollars in thousands)Six months ended
 June 30,
 20212020
North America$155,328 $157,849 
EMEA61,804 55,578 
Emerging Markets26,201 20,998 
 $243,333 $234,425 
 
Workforce ExcellenceNorth America revenue decreased $25.2$2.5 million, or 15.2%1.6%, during the six months ended June 30, 20202021 compared to the same period in 2019.2020. The revenue increasedecrease is primarily due to the following:

•a $21.1$4.2 million decrease in revenuethe first quarter of 2021 due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;
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•
a $5.7 million decrease due to divestiture of our Alternative Fuels Division on January 1, 2020;
•a $8.5$4.5 million net decreaseincrease in revenueour OPS practice primarily due to discontinued revenue streams from the divestiture of our alternative fuels division on January 1, 2020managed learning services and tuition program management business on October 1, 2019;content development businesses;
•$0.7a $3.8 million net decrease in our Engineering & Technical Services practicesTPS practice primarily due to project completions fora decline in our disaster recovery services along with a reduction of certain government clients;services due to contract completions;
•a $5.6 million net increase in our APS practice primarily due to a new contract award in June of 2020; and
•a $1.7$1.1 million net decreaseincrease in revenue due to changes in foreign currency exchange rates.
These decreases were offset by a $6.8 million net increase inEMEA revenue in our Managed Learning Services practice primarily due to a $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$6.2 million, or 23.7%11.2%, during the six months ended June 30, 20202021 compared to the same period in 2019.2020. The revenue increase is primarily due to the following:

•a $22.9$2.4 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$1.2 million net decrease in our Sales EnablementOPS practice primarily due to our managed learning services and content development businesses;
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•a decline$4.1 million net increase in automotive sales trainingour TPS practice primarily due to project completions;an increase in platform adoption services and engineering services;
•a $0.5$0.3 million net decreaseincrease in our Organization Development practice primarily due to a decline in leadership development and strategic consulting services;APS practice; and
•a $0.7$5.5 million net decreaseincrease in revenue due to changes in foreign currency exchange rates.
 
Emerging Markets revenue increased $5.2 million, or 24.8%, during the six months ended June 30, 2021 compared to the same period in 2020. The revenue increase is due to the following:

•a $0.4 million decrease in revenue due to the cancellation or postponement of training events and other project related work due to COVID-19 shutdowns;
•a $4.8 million net increase in our OPS practice primarily due to increases in managing learning services in our APAC region;
•a $0.2 million net increase in our TPS practice;
•a $0.4 million net increase in our APS practice; and
•a $0.2 million net increase in revenue due to changes in foreign currency exchange rates.


Gross Profit
(Dollars in thousands)Six months ended
 June 30,
 20202019
  % Revenue % Revenue
Workforce Excellence$22,895  16.3 %$27,218  16.5 %
Business Transformation Services10,616  11.3 %17,019  13.8 %
 $33,511  14.3 %$44,237  15.3 %
(Dollars in thousands)Six months ended
 June 30,
 20212020
  % Revenue % Revenue
North America$31,169 20.1 %$26,585 16.8 %
EMEA10,043 16.2 %5,169 9.3 %
Emerging Markets4,057 15.5 %1,757 8.4 %
 $45,269 18.6 %$33,511 14.3 %
 
Workforce ExcellenceNorth America gross profit of $22.9$31.2 million, or 16.3%20.1%, of revenue for the six months ended June 30, 2020 decreased2021 increased by $4.3$4.6 million or 15.9%,or 17.2%, when compared to gross profit of $27.2$26.6 million, or 16.5%16.8%, of revenue for the same period in 2019 primarily due to the COVID-19 related2020.

EMEA gross profit of $10.0 million, or 16.2% ,of revenue decreases noted above. In addition, we incurred severance expense of $1.2 million in this segment which is included in cost of revenue duringfor the six months ended June 30, 2021 increased by $4.9 million, or 94.3%, when compared to gross profit of $5.2 million, or 9.3%, of revenue for the same period in 2020.

Business Transformation ServicesEmerging Markets gross profit of $10.6$4.1 million, or 11.3%15.5%, of revenue for the six months ended June 30, 2020 decreased2021 increased by $6.4$2.3 million, or 37.6%130.9%, when compared to gross profit of $17.0$1.8 million, or 13.8%8.4%, of revenue for the same period in 2019 primarily due to2020.

The improved margins in all our business segments was the COVID-19 related revenue decreases noted above. In addition, we incurred severance expenseresult of $1.0 million in this segment which is included in cost of revenue during the six months ended June 30, 2020.increasing revenues, restructuring activities and strategic focus on margin expansion.

General and Administrative Expenses
 
General and administrative expenses weredecreased $1.2 million, or 3.8%, from $31.5 million for both the six months ended June 30, 2020 and 2019. We hadto $30.3 million for the same period in 2021. The decrease is primarily due to (i) a $1.2 million decrease in bad debt, (ii) a $1.0 million decrease in amortization expense resulting from the sale of the IC Axon Division, (iii) a $0.8 million reduction in labor and benefits expenseexpenses resulting from restructuring initiatives, (iv) a $0.6 million reduction in information technology cost and lower overall spending due to the COVID-19 related shutdowns(v) a $0.4 million reduction in facility costs partially offset by a $1.0$2.8 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.fees.

Sales and Marketing Expenses

Sales and marketing expenses decreased $0.2increased $1.3 million, or 5.1%36.1%, from $3.9$3.7 million for the six months ended June 30, 20192020 to $3.7$5.0 million for the same period in 20202021 primarily due to lower laborincreased sales and benefits expense.marketing efforts.

Restructuring Charges

During the first half of 2021, we executed various activities to improve our general and administrative functions and as a result recorded a $1.2 million consulting cost. As a result of this review, we incurred $0.3 million in severance costs related to
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Restructuring chargespersonnel reductions in our general and administrative support functions. In addition, we incurred a $0.9 million impairment cost as a result of the closure of certain operations in the United Kingdom. We permanently closed our body shop operations in Thailand and as result incurred a $0.1 million restructuring cost related to the loss on the sale of inventory associated with the business.

During the second quarter of 2020, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth. We recorded severance expense of $0.9 million for the sixthree months ended June 30, 2020 which is included in restructuring charges on the condensed consolidated statements of operations and which is expected to be paid by the end of 2020. During the same period in 2019, we incurred $1.3 million of restructuring charges in connection with the TTi Global acquisition.

Loss on Change in Fair Value of Contingent Consideration
 
We recognizedDuring the first half of 2021, we incurred a net gain$0.3 million loss on the change in fair value of a contingent consideration relatedresulting from the sale of the Alternative Fuels Division as a result of certain milestones are not expected to acquisitions of $0.7 million forbe achieved under an assigned contract through the six months ended June 30, 2019. For the six months ended June 30, 2020, we didn't have any outstanding contingent consideration liabilities related to prior acquisitions.period ending December 31, 2021.

Gain (Loss) on Sale of Business

As of June 30, 2021, we sold a business outside of our focus industries, which we had previously classified as held for sale. The related assets previously held for sale were primarily composed of $1.1 million of operating lease right-of-use assets, $0.3 million of fixed assets, and $0.1 million of goodwill. The related liabilities held for sale were primarily composed of $1.2 million of operating lease liabilities. We received proceeds on the sale of this business of $0.4 million and recorded a loss on the sale of business of $0.4 million. Transaction costs related to the sale totaled $0.4 million. This business was part of the EMEA segment.

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.

Interest Expense
 
Interest expense decreased $1.7$1.2 million from $3.3$1.6 million for the six months ended June 30, 20192020 to $1.6$0.4 million for the same period in 2020.2021. 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)Expense
 
Other expense was $0.7$1.0 million for the six months ended June 30, 20202021 compared to other income of $0.1$0.7 million for the same period in 2019. The increase in other expense is partially due to a $0.3 million impairment loss on an operating lease right-of-use asset related to the consolidation of our TTi Global headquarters with our Troy, Michigan office in the first quarter of 2020, and a $0.3 million increase in foreign currency losses during the six months ended June 30, 2020 compared to the corresponding period in 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.2020.

Income Tax Expense (Benefit)
 
Income tax benefitexpense was $(1.8)$1.3 million for the six months ended June 30, 20202021 compared to income tax expensebenefit of $1.4$(1.8) million for the same period in 2019.2020. The effective income tax rate was 48.8%23.0% and 28.9%48.8% for the six months ended June 30, 20202021 and 2019,2020, respectively. The change in tax rate was primarily due to changes in the jurisdictional mix of earnings and the tax effects of a decreasean increase 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 $72.5$107.3 million at June 30, 20202021 compared to $92.9$99.9 million at December 31, 2019.2020. As of June 30, 20202021, we had $57.7$9.0 million of long-term debt outstanding.debt. We believe that cash generated from operations and borrowings available under our Credit Agreement ($44.991.7 million of available borrowings as of June 30, 20202021 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
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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
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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, 20192020 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.2021.
 
As of June 30, 2020,2021, the amount of cash and cash equivalents held outside of the U.S. by foreign subsidiaries was $11.1$12.1 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.

Stock Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the six months ended June 30, 2021 and 2020, we repurchased approximately 255,000 shares of our common stock in the open market for a total cost of approximately $1.8 million. During the six months ended June 30, 2019 we did not repurchase shares of our common stock in the open market. As of June 30, 2020,2021, there was approximately $1.9 million available for future repurchases under the buyback program. Pursuant to the terms of the Merger Agreement, we are prohibited from repurchasing shares of our common stock without LTG’s prior written consent.
 
Significant Customers & Concentration of Credit Risk
 
We have a market concentration of revenue in both the automotive sector and financial & insurance sector. Revenue from the automotive sector accounted for approximately 24%25% and 29%24% of our consolidated revenue for the six months ended June 30, 20202021 and 2019,2020, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 13%15% and 14%13% of our consolidated revenue for the six months ended June 30, 20202021 and 2019,2020, respectively. As of June 30, 2020,2021, accounts receivable from a single automotive customer totaled $15.1$20.5 million, or 15%20%, of our consolidated accounts receivable balance.

Revenue from the financial & insurance sector accounted for approximately 16%17% and 15%16% of our consolidated revenue for the six months ended June 30, 20202021 and 2019.2020. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 9% and 11% of our consolidated revenue for the six-months ended June 30, 20202021 and 2019, respectively.2020. As of June 30, 2020,2021, billed and unbilled accounts receivable from a single financial services customer totaled $8.7$9.5 million, or 6%7%, of our consolidated accounts receivable and unbilled revenue balances.

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

No other single customer accounted for more than 10% of our consolidated revenue for the six months ended June 30, 20202021 or 20192020 or consolidated accounts receivable balance as of June 30, 2020.2021.






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Cash Flows
 
Six Months ended June 30, 20202021 Compared to the Six Months ended June 30, 20192020
 
Our cash and cash equivalents balance increased $3.9decreased $7.6 million from $8.2$23.1 million as of December 31, 20192020 to $12.1$15.5 million as of June 30, 2020.2021. The increasedecrease in cash and cash equivalents during the six months ended June 30, 20202021 resulted from cash used in operating activities of $3.4 million, cash used in investing activities of $0.6 million, cash used in financing activities of $4.5 million, and a positive effect of foreign currency exchange rates changes on cash of $0.9 million.
Cash used in operating activities was $3.4 million for the six months ended June 30, 2021 compared to cash provided by operating activities of $32.8 million for the same period in 2020. The decrease in cash from operations is primarily due to a net decrease in working capital balances during the six months ended June 30, 2021 compared to the same period in 2020.
Cash used in investing activities was $0.6 million for the six months ended June 30, 2021 compared to cash provided by investing activities of $2.2 million cash used in financing activities of $30.4 million and a negative effect of exchange rate changes on cash of $0.6 million.
Cash provided by operating activities was $32.8 million for the six months ended June 30, 2020 compared to $6.3 million cash used in operating activities for the same period in 2019.2020. The increase in cash from operations is primarily due to an improvement in cash collections of accounts receivable during the six months ended June 30, 2020 compared to the same period in 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 of $1.3 million for the same period in 2019. The increasechange in cash from investing activities is primarily due to a $3.3 million of cash proceeds from the sale of our alternative fuels divisionAlternative Fuels Division on January 1, 2020.
 
Cash used in financing activities was $30.4$4.5 million for the six months ended June 30, 20202021 compared to cash provided of $1.2$30.4 million for the same period in 2019.2020. The increase in cash used in financing activities is primarily due to a $28.4 million increase in net repayments of borrowings under our credit agreement, a $1.4 million decrease in negative cash book balances during the first half of 2020 compared to the same period in 2019 and $1.8 million used for share repurchases in the first half of 2020.Credit Agreement.
 
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 agreementCredit Agreement with Wells Fargo dated December 21, 2016, as amended on April 28, 2018 and June 29, 2018 (the "Original Credit Agreement").2018. 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").subsidiaries. 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 Adjusted 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 Adjusted LIBOR, Rate, plus 100 basis points (1.0%); plus an Applicable Margin. Determination of the Applicable Margin is based on a pricing grid that is generally dependent upon the Company's Leverage Ratio (as defined) as of the end of the fiscal quarter for which consolidated financial statements have been most recently delivered. We may prepay the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions.

The Credit Agreement contains customary representations, warranties and affirmative covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stock dividends, and (vii) certain other restrictive agreements. On May 7, 2020 we entered into an amendment to the Credit Agreement that increases the maximum leverage ratio we are required to maintain from 3.0 to 1.0 to 3.75 to 1.0 for the fiscal quarters ending June 30, 2020, September 30, 2020 and December 31, 2020, and 3.00 to 1.0 for fiscal quarters ending March 31, 2021 and thereafter, and a minimum interest expense coverage ratio of 3.0 to 1.0. The leverage ratio is computed by dividing our Funded Debt by our Consolidated EBITDA, as those terms are defined in the Credit Agreement, for the trailing four fiscal quarters, and the interest coverage ratio is computed by dividing our Consolidated EBITDA by our Consolidated Interest Expense for the trailing four fiscal quarters. As of June 30, 2020,2021, our leverage ratio was 2.10.3 to 1.0 and our
33

interest expense ratio was 6.419.5 to 1.0, each of which was in compliance with the Credit Agreement. In addition, the amendment to the Credit Agreement reduced the borrowing limit under the credit facility from $200 million to $140 million.
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As of June 30, 2020,2021, there were $57.7 million ofno borrowings outstanding and $44.9$91.7 million of available borrowings under the revolving loan facility based on our Leverage Ratio. For the six months ended June 30, 20202021 and 2019,2020, the weighted average interest rate on our borrowings was 3.2%1.6% and 4.7%3.2%, respectively. As of June 30, 2020,2021, 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$0.9 million of unamortized debt issue costs related to the Credit Agreement as of June 30, 20202021 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 June 30, 2020,2021, 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.


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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 acquisitionacquisition/divestiture 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 (benefit), 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,loss on change in fair value of contingent consideration, foreign currency transaction losses, legal acquisitionacquisition/divestitures and transaction costs, impairment of operating lease right-of-use assets, 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.






















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GP STRATEGIES CORPORATION AND SUBSIDIARIES
Non-GAAP Reconciliation – Adjusted EBITDA
(In thousands)
(Unaudited)



Quarters ended		Years ended

Three Months Ended		Six Months Ended
June 30,June 30,
June 30,
20202019202020192021202020212020
Net income (loss)Net income (loss)$(606) $3,219  $(1,900) $3,553  Net income (loss)$2,479 $(606)$4,203 $(1,900)
Interest expenseInterest expense607  1,679  1,585  3,277  Interest expense197 607 378 1,585 
Income tax expense (benefit)Income tax expense (benefit)(1,185) 1,300  (1,814) 1,447  Income tax expense (benefit)812 (1,185)1,253 (1,814)
Depreciation and amortizationDepreciation and amortization2,077  2,316  4,254  4,657  Depreciation and amortization1,487 2,077 2,959 4,254 
EBITDAEBITDA893  8,514  2,125  12,934  EBITDA4,975 893 8,793 2,125 
Adjustments:Adjustments:Adjustments:
Non-cash stock compensation expenseNon-cash stock compensation expense1,536  1,330  2,792  2,419  Non-cash stock compensation expense1,620 1,536 3,287 2,792 
Restructuring chargesRestructuring charges855  182  855  1,301  Restructuring charges1,763 855 2,462 855 
Severance expenseSeverance expense2,354  —  2,565  1,011  Severance expense585 2,354 1,124 2,565 
Gain on change in fair value of contingent consideration, net—  (627) —  (677) 
ERP implementation costs—  464  —  1,148  
Loss on change in fair value of contingent considerationLoss on change in fair value of contingent consideration— — 269 — 
Foreign currency transaction lossesForeign currency transaction losses346  207  842  552  Foreign currency transaction losses372 346 1,621 842 
Legal acquisition and transaction costs—  365  1,038  518  
Legal acquisition/divestitures and transaction costsLegal acquisition/divestitures and transaction costs1,408 — 2,258 1,038 
Impairment of operating lease right-of-use assetImpairment of operating lease right-of-use asset—  —  255  —  Impairment of operating lease right-of-use asset— — 103 255 
Gain on sale of business—  —  (1,064) —  
Loss (gain) on sale of businessLoss (gain) on sale of business377 — 377 (1,064)
Adjusted EBITDAAdjusted EBITDA$5,984  $10,435  $9,408  $19,206  Adjusted EBITDA$11,100 $5,984 $20,294 $9,408 








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Table of Contents
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, 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, the impact of the COVID-19 pandemic and related events that are beyond our control and difficult to predict, risks associated with the Merger Agreement and the pending Merger, 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, 20192020 and Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q for the quarter ended June 30, 20202021 (including but not limited to Risks Related to "COVID-19")COVID-19 and Risks Related to the Merger Agreement) and those other risks and uncertainties detailed in our periodic reports and registration statements filed with the Securities and Exchange Commission.Commission (the "SEC"). 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 $140.0 million. As of June 30, 2020,2021, we had $57.7 millionno outstanding debt 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 Daily Adjusted London Interbank Offered Rate (“LIBOR rate”).LIBOR. 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 June 30, 20202021, 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.
 

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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 ourthe Company’s Chief Executive Officer and ourits Chief Financial Officer, we havethe Company has, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), evaluated the effectiveness of the design and operation of ourits disclosure controls and procedures as(as defined under Rule 13a-15(e) of the end of the period covered by this report.Exchange Act). Based upon thisthat evaluation, ourthe Company’s Chief Executive Officer and its Chief Financial Officer have concluded that, as of such date, ourJune 30, 2021, the Company’s disclosure controls and procedures were not effective atare effective. There has been no change in the reasonable assurance level due to the material weaknesses in ourCompany’s internal control over financial reporting disclosed in our Annual Report on Form 10-K forthat occurred during the year ended December 31, 2019.first quarter of 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Material Weaknesses and Status of Remediation

As described in Part II, Item 9A
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Table of our Annual Report on Form 10-K for the fiscal years ended December 31, 2018, and December 31, 2019, we are implementing a remediation plan to address the material weaknesses disclosed in such Annual 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 and has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated.Contents

Changes in Internal Controls

As a result of the 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 June 30, 2020. Other than as disclosed above under “Material Weaknesses and Status of Remediation”, there2021. 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 six months ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

37


PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
None.On July 14, 2021, the Company’s management was notified by the UK Health and Safety Executive (HSE) of possible violations of workplace safety rules by a U.K. subsidiary of GP Strategies, related to workplace injuries suffered in 2019 by an individual working at a site at which the Company was the principal contractor. The HSE has indicated that certain charges are under consideration, although a decision on whether to prosecute has not been made. The Company is working with counsel to respond to the HSE; however, counsel advises that it is likely that charges will be filed. Legal costs will be recognized as incurred. If charges are filed, the burden would be upon the Company to establish compliance with applicable rules. In the event the Company is determined to have violated applicable laws, statutory penalties will be imposed by the court. The Company anticipates that such penalties, if assessed, are unlikely to exceed $1.25 million. Based on the present status of these matters, management believes the range of reasonably possible losses to be $0 to $1.25 million.
 
Item 1A. Risk Factors
 
The following risk factors are in addition to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the Securities and Exchange Commission (the “SEC”)SEC on March 10, 2020.12, 2021. 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")COVID-19

The COVID-19 pandemic adversely affected our results of operations in 2020 and the first half of 2020 and2021and could potentially have a material adverse impact on our business, financial condition and results of operations for at least the remainder of 2020,of2021, 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 duringhas remained uncertain and rapidly evolving through the first halfquarter of 2020, as travel restrictions, stay at home orders2021 and other limitations on conducting business came into effect in different forms at different times in the different places where we conduct business.date of this report. We estimate that the decreases in our revenue due to the effects of COVID-19 resulted in an approximatelywere at least $11.5 million decrease in our revenue in the first quarter of 2020, and $32.6$32.5 million decrease in our revenue in the second quarter of 2020, $18.4 million in the third quarter of 2020, and $17.9 million in the fourth 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. DuringAlso, we estimate we had at least an approximately $7.0 million decrease in our revenue in the first half of 2021. During 2020 and 2021 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. With the continued rollout of vaccines, we expect the negative effects of COVID-19 to decline sequentially over the remainder of 2021, but there may be regions, industries or our business lines that would be more significantly affected than others during this period, particularly in regions where variants of the virus emerge and/or vaccination rates are relatively lower.

It continuesRisks Related to be too early to assess the full impact thatMerger Agreement

On July 15, 2021, we entered into the COVID-19 pandemic,Merger Agreement with LTG, US Holdco and Merger Sub. See Part I, Item 2 of this Quarterly Report on Form 10-Q. For additional information regarding the actions taken in response to it,Merger Agreement and the overall effectMerger, please see our Current Report on Form 8-K filed with the global and regional economies willSEC on July 15, 2021. In addition to the risks we identified in our 2020 Annual Report on Form 10-K, we have on our employees, our operating segments and practices, our customers and vendors,identified the industries and regions that we serve, or our financial condition and resultsfollowing risks related to the Merger, among others:
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Table of operations as a whole. The full impact depends on many factors that are uncertain or not yet identifiable, and in many cases are outContents

Failure to complete the Merger could negatively affect the price of our control. Those factors could include, among other things:common stock, as well as our future business and financial results.

The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Merger. We cannot assure you that all of the conditions to the Merger will be so satisfied or waived. If the conditions to the Merger are not satisfied or waived, we may be unable to complete the Merger.

If the Merger is not completed, our ongoing business may be adversely affected as follows:

•we may experience negative reactions from the durationfinancial markets, including negative effects on the market price of our common stock;
•some of management's attention will have been directed to the COVID-19 pandemicMerger instead of being directed to our own operations and the types and magnitudepursuit of adverse impacts on regional economies, individually, and the global economy, as a whole;other opportunities that could have been beneficial to us;
•the healthmanner in which customers, suppliers and welfare ofother third parties perceive us may be negatively impacted, which in turn could affect our employees and contractors and those of our customers and vendors;
•evolving business and government actions in responseability 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 foroperate 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;we may experience negative reactions from employees;
•the varying demand for the types of services we offer in the geographic regions in which we offer themwill have expended time and whether such services might be deemed essential under applicable government orders or considered more discretionary spending byresources that could otherwise have been spent on 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;
38

•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;existing business; and
•we may be required, in certain circumstances, to pay a termination fee of $12,000,000 or to reimburse LTG for its expenses incurred in connection with the timingMerger Agreement and the Merger up to a maximum of finding effective treatments or a cure or a vaccine.$1,200,000, as provided in the Merger Agreement.

SuchAdditionally, in approving the Merger Agreement, our board of directors considered a number of factors may increaseand potential benefits, including the currently anticipated duration and severityfact that the Merger consideration to be received by holders of our common stock represented a premium of approximately 32% over the closing price of our common stock on July 14, 2021. If the Merger is not completed, neither the Company nor the holders of our common stock will realize this benefit of the pandemicMerger. Moreover, we would have incurred substantial transaction-related fees and its effects. Ifcosts and the pandemicloss of management time 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.resources.

The COVID-19 pandemicA significant delay in consummating or a failure to consummate the Merger could impacthave a material adverse effect on the price of our segmentscommon stock and practices, the types of services they provide, and the regions in which we operate, differently.our operating results.

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 expectBecause the Merger is subject to certain closing conditions, it is possible 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 technologyMerger may not be completed or may not be completed as effectivequickly 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.expected. If the Company experiences cybersecurity issues,Merger is unable to protect confidential information, or is unable to adequately provide services or perform corporate functions, all or portions ofnot completed, it could have a material adverse effect on 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 welfareprice of our key employees ofcommon stock. In addition, any significant delay in consummating the Company, whichMerger could have a material adverse effect on our abilityoperating results and adversely affect our relationships with customers and suppliers and would likely lead to secure or perform client engagementsa significant diversion of management and employee attention.

Expenses related to the proposed Merger are significant and will adversely affect our results of operations.operating results.

We rely heavilyhave incurred and expect to continue to incur significant expenses in connection with the proposed Merger, including legal and investment banking fees. We expect these costs to have an adverse effect on our customer-facing employees to secure and perform customer engagements.operating results. If the healthMerger is not consummated, we may under certain circumstances be required to pay to LTG a termination fee of $12,000,000 or to reimburse LTG for its expenses incurred in connection with the Merger Agreement and welfarethe Merger up to a maximum 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,$1,200,000. Our financial position and results of operations of onewould be adversely affected if we were required to pay the termination fee to LTG or more ofto reimburse LTG for its expenses.

We are subject to business uncertainties and contractual restrictions while the Merger is pending, which could adversely affect our segments or practices, or the Company as a whole, could be materially adversely affected.business.

The COVID-19 pandemicMerger Agreement requires us to act in the ordinary course of business and its economic effects could increaserestricts us, unless we first obtain LTG’s consent, from taking certain specified actions until the likelihood that we could incur material asset impairment charges in future periods.proposed Merger occurs or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Merger or, if the Merger is not completed, termination of the Merger Agreement.

In the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2019, filedUncertainties associated 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 toMerger may cause a decrease in expected cash flows, adverse changes in market conditions,loss of management and a material decline inother key employees and disrupt our stock price, all ofbusiness relationships, which could increase the likelihood that we could incur material goodwill and other intangible asset impairment charges in the future.adversely affect our business.

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Uncertainty about the effect of the Merger on our employees, customers and suppliers may have an adverse effect on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed. Employee retention may be particularly challenging during the pendency of the Merger. If key employees depart and as we face additional uncertainties relating to the Merger, our business relationships may be subject to disruption as suppliers and other third parties attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company. If key employees depart or if our existing business relationships suffer, our results of operations may be adversely affected. The adverse effects of such disruptions could be further exacerbated by any delay in the completion of the Merger.

The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us for greater consideration than what LTG has agreed to pay.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a company other than LTG. These provisions include a general prohibition on us soliciting any acquisition proposal or offer for a competing transaction. If we or LTG terminate the Merger Agreement and we agree to be or are subsequently acquired by another company, we may in some circumstances be required to pay to LTG a termination fee of $12,000,000 or to reimburse LTG for its expenses incurred in connection with the Merger Agreement and the Merger up to a maximum of $1,200,000. Further, our Board has agreed in the Merger Agreement, subject to limited exceptions, that it will not withdraw or modify in a manner adverse to LTG its recommendation that our stockholders approve the Merger.

These provisions might discourage a third party that has an interest in acquiring all or a significant part of the Company from considering or proposing an acquisition, even if the party were prepared to pay consideration with a higher per share cash or market value than the cash value proposed to be received in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.


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 June 30, 2020: 2021:
 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, 20208,743  (2)$6.61  —  $3,755,000  
May 1 - 31, 2020128,274  (2)$6.31  120,742  $2,988,000  
June 1 - 30, 2020133,819  $7.87  133,819  $1,929,000  

 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, 202127,081 (2)$17.55 — $1,922,000 
May 1 - 31, 20216,637 (2)$16.62 — $1,922,000 
June 1 - 30, 2021— $— — $1,922,000 
 
(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 secondfirst quarter of 2020.2021.

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Item 6.    Exhibits
10.1
31.1
31.2
32.1
101The following materials from GP Strategies Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020,2021, 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.

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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
  
August 7, 20209, 2021/s/  Adam H. Stedham
 Adam H. Stedham
 Chief Executive Officer and President
  
August 7, 20209, 2021/s/  Michael R. Dugan
 Michael R. Dugan
 Executive Vice President and Chief Financial Officer

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