GP Strategies Management Discusses Q4 2012 Results - Earnings Call Transcript

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GP Strategies (NYSE:GPX)

Q4 2012 Earnings Call

February 26, 2013 10:00 am ET


Ann M. Blank - Director, Financial Reporting & Investor Relations

Scott N. Greenberg - Chief Executive Officer, Director, Member of Executive Committee and Director of National Patent Development Corporation

Sharon Esposito-Mayer - Chief Financial Officer, Executive Vice President and Principal Accounting Officer

Douglas E. Sharp - President


Joseph D. Janssen - Barrington Research Associates, Inc., Research Division

Jeff Martin - Roth Capital Partners, LLC, Research Division

Kevin Liu - B. Riley & Co., LLC, Research Division


Good morning. My name is Lynne, and I will be your conference operator today for the GP Strategies Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Thank you. I would now like to turn the conference over to Ann Blank, Director of Financial Reporting and Investor Relations. Please go ahead.

Ann M. Blank

Thank you. Good morning, and welcome to GP Strategies' fourth quarter 2012 earnings call. On the call today are Scott Greenberg, Chief Executive Officer; Douglas Sharp, President; and Sharon Esposito-Mayer, Chief Financial Officer.

Before we begin, I would like to remind you that today's comments will include forward-looking statements, which are subject to certain risks and uncertainties that could cause our actual results to be materially different from expectations. For a complete discussion of these risks, we encourage you to read our documents on file with the SEC, which are posted on the Investors section of our website at A replay of today's call will also be available on our website shortly after the call. At this time, I'd like to turn the call over to Scott.

Scott N. Greenberg

Thank you, Ann, and good morning, and welcome to our fourth quarter 2012 conference call. Today, we will follow our usually quartile format. To initiate the call, I'll provide a brief overview of the results for the fourth quarter and year, and then Sharon will present an in-depth financial analysis of the quarter, and then Doug will give some key updates on our strategic initiatives in recent contract awards. After Doug's presentation, I'll focus on our acquisition strategy, future vision and the company's plan for long-term growth. Then, we will conclude with a Q&A session.

As appeared in our press release today, GP Strategies reported our trend of extremely strong financial results that continued in the fourth quarter of 2012. This contributed to record results for the full year of 2012.

For the year, we achieved 10% organic growth. Our Learning Solutions, Sandy and Energy groups demonstrated continued strong performance for both the quarter and for the full year. These positive results, combined with our successful execution of our acquisition strategy, continued to reinforce the company's long-term growth prospects.

The company in the last 4 months of 2012 completed 2 acquisitions to further enhance our long-term prospects and platform. BlessingWhite, which is involved in leadership training and growth in Dynamics, which is involved with energy vibration, analysis and predictive maintenance.

As far as the operating results for the fourth quarter, the company reported an increase in revenue of 13%. In addition, GP Strategies reported for the fourth quarter EBITDA of $12.4 million or approximately 12% of revenue, both records for the company.

Our improvement in EBITDA percentage for both the quarter and year clearly demonstrates our ability to increase operating leverage during periods of organic growth.

Looking at the year end, our actual reported EBITDA was $44 million or approximately $2.28 per share on a fully diluted basis. The thing to realize is our increase in earnings in the fourth quarter were 100% attributed to organic operations.

As far as our balance sheet is concerned, at December 31, 2002 [sic] 2012, the company had cash balances of approximately $7.8 million and no long-term debt. So we were debt-free at the end of 2012. The operating results continued to demonstrate GP Strategies' ability to generate free cash flow. We generated approximately $22.8 million of free cash flow in 2012.

During the quarter, the company repurchased 127,000 of its common stock in the open market for approximately $2.5 million.

Now I'd like to discuss a few other operating trends impacting our prospects of long-term growth. On previous calls, we've discussed the key initiatives to expand in the financial service sector. The company is very pleased to report that our work with SunTrust will be ramping up beginning in the second quarter of 2013. In addition, Doug will discuss long-term contracts renewed from our key customers. This is extremely important to GP Strategies, as over 90% of our revenue is typically generated from our recurring customer base.

Another growth area for GP Strategies is the U.K. job skills apprenticeship training program. The U.K. Skills Funding Agency has been highly supportive of our initiative, including innovation of contracts and also acquiring additional contract vehicles. In our recent press release, we've described the results in the [ph] U.K. covenant that reported dramatically improved operating performance by GP Strategies on a quite [ph] basis [ph] continue with its acquisition strategies. I'm pleased to report that the U.K. Skills Council is now the second largest customer of GP.

As far as training industry dynamics, the total domestic training industry is estimated to be approximately $50 billion. The majority of training is still done by internal organizations training department, but we believe the trends of customers to focus on their core competency and outsourced training like they're doing in other non-core functions such as human resources, IT and finance. While the outsourcing market itself is highly fragmented, we believe we have the ability to grow and to stake our position as one of the leaders. We believe our key differentiators are our strong technical expertise, our global reach and cost-effective solutions. This combination is the key to our success.

Since 2006, we have made over 20 acquisitions and we are continuing to see significantly more cross-selling opportunities. We have made these acquisitions predominantly through the cash flow generated from operations. We see expanding leadership training, e-learning and global delivery as major initiatives of the company's training going forward.

As far as delivery, the economics of our industry is changing. The methods are changing and the delivery is changing. When we look at the industry itself a few years ago, the majority of our training revenue was generated by stand-up instructors. Today, e-learning and blended solutions is paramount to our company's success. GP Strategies strives to be a front-runner with its tools, technique and people. With that being said, I will now turn the call over to Sharon, who will give a detailed financial presentation for the quarter.

Sharon Esposito-Mayer

Thanks, Scott, and good morning, everyone. We are pleased to report fourth quarter revenue of $106 million or 13% growth over the fourth quarter of 2011, an annual revenue growth in 2012 of $68.4 million or 21%. We achieved organic revenue growth of 5% in the fourth quarter and 10% for the full year.

We derived strong revenue growth in the fourth quarter from our Learning Solutions, Sandy and Energy segments. Revenue in the Learning Solutions segment increased by $10.4 million or 29%. The BlessingWhite acquisition, which was completed on October 1, 2012, contributed $3.7 million of revenue in the quarter. And the Asentus acquisition completed on June 29, 2012, contributed $2.4 million of revenue in the quarter. The Learning Solutions segment had $4.1 million or 11% of organic revenue growth in the quarter due to a $1.9 million increase in U.S. e-learning and training outsourcing clients, primarily in the financial sector, and $2.4 million of revenue growth in the U.K. coming from both commercial and government clients.

The Sandy segment had another strong quarter with a $3.9 million or 25% improvement in revenue, with continued growth coming from an increase in training programs for both domestic and foreign auto manufacturers.

The Performance Readiness Group, formerly called RWD, transferred approximately 400,000 of work into the Sandy segment in 2012. Excluding this work, the Sandy segment achieved organic revenue growth in the quarter of $3.4 million or 23%. Sandy's fourth quarter results included publication revenue of approximately $2.5 million. We are currently projecting $400,000 of publication revenue in the first quarter of 2013, consistent with the first quarter of 2012. However, the $400,000 of publication revenue represents a $2.1 million decrease from the $2.5 million of publications revenue in the fourth quarter, due to the timing of when publications ship.

The Energy segment had a $1.8 million or 31% increase in revenue in the fourth quarter. The Rovsing acquisition completed on September 17, 2012, contributed $1.1 million of revenue growth in the quarter, with a remaining $700,000 or 12% of organic revenue growth primarily due to an increase in EtaPRO license sales and services.

The Performance Readiness segment provided $30 million of revenue in the quarter, down slightly from the fourth quarter of 2011. Considering the $400,000 of revenue transferred to the Sandy segment, revenue in this segment grew $200,000 or 2% in the quarter. The increases in revenue in these segments were partially offset by a $3.8 million or 16% revenue decline in the Professional & Technical Services segment.

The fourth quarter revenue decreases are primarily due to an $800,000 decline in technical services for a pharmaceutical client; a $1 million decline in engineering services related to a project that concluded in Q1 of 2012; an $800,000 decline in technical training services; a $700,000 decline in LNG services; and a $500,000 decrease in revenue, due to the completion of the large Lean consulting projects in early 2012.

The automotive sector comprised 17% of revenue in 2012, down slightly from 18% in 2011. However, revenue from the automotive sector increased to $70.2 million in 2012, for a $14.1 million or 25% increase over 2011, due to extended work with both domestic and foreign auto manufacturers.

General Motors remains our largest customer and comprised 8% of revenue in 2012. U.S. Government remains our second largest market sector, comprising 12% of revenue in 2012, down from 14% in 2011. Revenue earned from our operations outside the United States represented 19% of our revenue in 2012, up slightly from 18% in 2011.

Gross profit increased in the fourth quarter by $3.2 million or 19%. The acquisitions contributed $900,000 of the increase in gross profit, and the remaining $2.3 million increase was primarily due to the organic revenue growth.

Operating income increased by $2 million to 9.6% of revenue, up from 8.8% of revenue in the fourth quarter of 2011. The recently completed acquisitions did not contribute to the increase in operating income after taking into consideration the incremental SG&A and the amortization expense. As a result, the $2 million increase in operating income on the $4.6 million of organic revenue growth in the quarter equates to incremental operating margin on organic revenue growth of 43%.

SG&A expense increased in the quarter by $1.2 million. The main drivers for the increase in SG&A expense are: a $500,000 increase in labor and benefits expense; a $200,000 increase in amortization expense; and a $500,000 net increase in IT infrastructure, software, business insurance, depreciation and other expenses, primarily related to the acquisitions that were completed in 2012.

During the quarter, we also recorded a $74,000 gain related to a change in the estimated earn-out payments and associated fair value of contingent consideration accrued for certain acquisitions, which compared to an $11,000 gain recorded in the fourth quarter of 2011. The combination of interest income and other income remained flat over 2011.

The tax rate for the quarter was 40.1% compared to 28.8% in the fourth quarter of 2011. In the fourth quarter of 2011, we recorded an $891,000 noncash gain related to the reversal of an uncertain tax position for a period that was outside the statute of limitations. This reduction have the effect of lowering the tax rate for the fourth quarter of 2011 by approximately 10.7%.

The tax rate for the 2012 full year was 36.6% in comparison to 37.1% in 2011. In the third quarter of 2012, we also recorded a $1.6 million income tax benefit related to the reversal of an uncertain tax position.

Excluding these nonrecurring tax benefits that were recorded in 2012 and 2011, the tax rate would have been 41.1% and 40.2%, respectively.

Fourth quarter net income was $6.1 million or an improvement of $200,000 or 3% over the fourth quarter of 2011. Excluding the $891,000 tax gain recorded in the fourth quarter of 2011, the improvement would have been $1.1 million or 22%. Excluding the tax gains recorded in both years, 2012 total year net income increased by $4.1 million or 24%.

Fourth quarter earnings per share were $0.32 compared to $0.31 in the fourth quarter of 2011. The $891,000 tax gain in 2011 had a $0.05 benefit on the 2011 fourth quarter earnings per share. Excluding this gain, fourth quarter earnings per share increased $0.06 or 23%. The $1.18 of earnings per share for the full year reflects the 25% improvement over 2011.

Moving on to a few balance sheet highlights. Our cash balances were $7.8 million at December 31, 2012, compared to the $4.2 million on hand at the end of 2011. In 2012, we spent $12.2 million net of cash acquired to complete acquisition, plus $1.9 million on contingent consideration payments for acquisitions previously completed. Other cash uses this year include $3.4 million of share repurchases. We generated $25.3 million of cash flow from operations in 2012, comprised of year-to-date income of $22.7 million, plus noncash add-backs to net income, including depreciation and amortization of $8 million, noncash compensation expense of $3.6 million, the change in deferred income taxes of $700,000 and a lock on contingent consideration of $800,000. There was an $8.3 million decrease in cash from other operating items, primarily due to an increase in receivables and a $600,000 cash used in other operating items related to earn-out payments in 2012 that were in excess of the estimated fair value of these payments initially recorded on the date of acquisition. There was also a $1.6 million noncash deduction to net income due to the noncash tax benefit we received from the reversal of the uncertain tax position.

Fixed asset additions were $2.5 million in 2012, compared to $4 million in 2011. And we generated free cash flow in 2012, as Scott mentioned, of $22.8 million compared to $12.2 million in 2011.

We did experience a $16.5 million increase in accounts receivable on the balance sheet as of December 31, 2012. Approximately $8 million of the increase was due to an increase in accounts receivable aged greater than 60 days, with the remainder of the increase due to an increase in overall revenue growth.

I'm happy to report that subsequent to December 31, we have reduced our AR greater than 60-day balance by approximately $8 million, which is reflected in our cash balance at February 22 of approximately $16.8 million, representing a $9 million increase over the cash balance we reported at 12/31.

Our backlog at the end of December was $221 million, in comparison to $203 million at the end of 2011 and $205 million at the end of the third quarter. $0.5 million [indiscernible] was recognized [indiscernible]. And that concludes the overview of the financial. So I will turn the call over to Doug at this time.

Douglas E. Sharp

Thank you, Sharon, and good morning, everyone. We are pleased to report another great year and fourth quarter.

In our market, the demand for corporate learning is growing. New processes, technology and regulations require new training to be developed and delivered often to a global workforce. Our clients need to put their knowledge more quickly and efficiently, and that's why they hire us, GP Strategies.

I will focus my update this morning on 3 areas: Industry awards, recognition, new contract awards and funding and the opportunity we see looking forward.

In our last call, I mentioned the recognition that we received through the awards from CLO Magazine, HRO Today and the Brandon Hall awards, which we received jointly with our customers, including Microsoft, Bank of America, Sikorsky and others. Since that call, we have been recognized as a top leadership training company by Training Industry, Inc. And recently, we've received, as Scott mentioned, top grades following an inspection of the U.K. regulatory body. This inspection address our U.K. government-funded training for adults entering or reentering the workforce. We won top awards in 4 categories, a feat accomplished only by a small percentage of training providers. And finally, we were notified that next week we will be awarded partner status by John Deere for the third year in a row. These awards and recognition, along with our excellent customer references put GP Strategies in a formidable position for competitive bidding opportunities. This leads me to my second topic, contract awards and funding. I'll run through a few of these quickly for you.

Our largest program for our largest customer, General Motors, has been secured for 2013 and will likely expand as the year progresses. Ford, Chrysler and Hyundai have also locked-in content -- or contracts funding for the year. We've also won new multiple year -- multi-year contracts for content development with a global fast food company, a large aerospace company and a regional bank. This makes the -- our fourth customer in the banking industry for content development.

Other large contract awards include education tuition administration for yet another large aerospace company, EtaPRO plan performance software sales to one of the largest U.S. utilities and contract for the design and construction of a liquid natural gas fueling station for a global package delivery company.

And finally, I should mention our partnership with SuccessFactors, which has been a rewarding to us, SAP and our customers. RWD has had a 15-year relationship with SAP, and GP Strategies has had a relationship with Plateau for nearly as long. SAP's acquisition of SuccessFactors, who had acquired Plateau, and our acquisition of RWD has placed us in a unique position to support SuccessFactors customers with software implementation in the training space.

So I will close with the last point and the following point. As Scott mentioned, in the year 2012, we've had a number of new clients. In addition to our government clients, we've provided services to 131 clients that ranked on the Fortune 500 list. 99 of our clients ranked on the global Fortune 500 list. 131 and 99 companies compares to 107 and 79 for the year 2011. The significant jump in clients is partly due to new contract wins and partly due to acquisitions. For example, BlessingWhite, our newest leadership development acquisition, which Sharon mentioned, had a number of new Fortune 500 clients with GP Strategies. The expanded client list becomes particularly relevant when you consider approximately, as Scott mentioned, 90% of our revenue comes from existing clients. The opportunity for cross-selling, combined with the general tailwinds supporting the industry, is what gives us the optimism as we look forward to 2013 and beyond. With that thought, I'll turn it back to Scott.

Scott N. Greenberg

Thank you, Doug. I know you've received a lot of information and a lot of facts today. I just want to repeat 1 or 2 from Sharon and Doug's presentation and then go on.

The first is, Sharon mentioned the backlog going from $203 million to over $220 million. The majority of that increase is from organic sources, and we are proud of that significant improvement. The second thing is our cash on coming in after year end. We ended the year with $7.8 million of cash and no debt. And as Sharon mentioned, as of last week, we were sitting with over $16 million of cash. So we actually generated $8.2 million of pure cash in the January and February time period. Again, a very good indication going into 2013.

Thirdly, I want to talk a little bit about the growth from current customers versus new customers. Basically, when you look at our 10% from organic growth that occurred in 2012, roughly 6% was from organic sources and 4% was from new customers. So roughly split among the 2 of 50-50, again another selling that we strive for.

Going into 2013, and Doug talked about a lot the major wins, there is some proposal activity and cyclicality that I'd like to talk about that will occur in the first quarter. The first quarter of 2013 will include certain items, including the seasonality of BlessingWhite operating results, investing in strategic initiatives and proposal activity with new customers that will impact the quarter. We believe that the company will benefit from these investments and initiatives in the remainder of 2013.

BlessingWhite is the acquisition we made as of October 1. But due to seasonality, BlessingWhite is projected to lose approximately $200,000 to $300,000 in the first quarter after goodwill and amortization. Last year in the first quarter, before we owned them, due to the seasonality, they usually lose an excess of $300,000 just on the operating line. So there's a major improvement in their operations, and they usually make money on towards the rest of the year. As we've said, when we bought BlessingWhite, we estimated that we paid a 6x multiple, so we estimate that the EBITDA should be roughly $1.6 million based upon last year's results. Again, this is a significant improvement from their operating results that does impact the first quarter.

Second, we discussed our Rovsing technology in the energy group, and we estimated that the introduction of the Rovsing technology will cost the company approximately $200,000 after amortization expense in the first quarter of 2013. However, thereto , based upon current proposal activity, we are looking for significant improvements for the remaining part of the year. The Energy group goes into the year with more proposal activity than it ever had in the existence of the company, so we're looking at significant improvements beginning in the second quarter.

And third, Doug talked about the wins and the proposals in the financial services sector. So we'll state that in the first quarter, ramping up of some of the major accounts in this sector, including PMC SunTrust and larger proposal activity, will cost the company approximately $200,000 in expenses in 2013.

So all positive things that will occur through 2013 that will impact the quarter.

Looking at the company's acquisition strategy, we have made 20-plus acquisitions since 2006. The company has grown from 2009, when it was doing approximately $217 million of revenue, now we're over $400 million of revenue. The company has grown from EBITDA in 2009 from approximately $17 million of EBITDA to over $44 million of EBITDA. So the acquisition strategy has been one of the success factors, helping to drive the company along with organic growth. We continue to see opportunities, particularly in leadership, sales training, e-learning and the ability to service our customers on a global basis, and we'll continue to look for successful biddings in our platform.

Lastly before I turn it over to Q&A, we will be presenting at 2 conferences in -- coming up shortly. We'll actually be in the RW Baird Business Service Conference in New York tomorrow. And that's why we released today, which is typically early for us, so we could present at the conference tomorrow on this full disclosure. And second, we'll be at the Roark Conference occurring in March in California. So we will be out on the road presenting the GP Strategies story to hopefully new investors. With that, moderator, I'd like to turn it over to Q&A.

Question-and-Answer Session


[Operator Instructions] The first question comes from the line of Joe Janssen.

Joseph D. Janssen - Barrington Research Associates, Inc., Research Division

Scott, looking back over the past 3 years, it's really, and quite impressively, you, Sharon and the team, have done with the business. So I wanted to congratulate you on that. Secondly, Scott, we're kind of talking about the organic growth. You can see that it slowed in the back half of the year versus the first half. You've kind of made some comments around Q1. Now given that comps are getting more difficult, as you see the business now and looking out over into 2013, is that 10% organic growth rates still achievable?

Scott N. Greenberg

Well, while we don't give particular guidance to quarters or years, I will say, when you look at our revenue growth, it typically coincides with the winning of major awards. So we typically get a boost up when a major award comes in and then it leverages. So looking at overall, we do look on a long-term basis of achieving 10% organic revenue growth. If you look at several of our sectors like Sandy, like BPO, like e-learning, that's been in excess of that growth target. We have been slightly slowed down due to the downturn in certain of our government accounts, which we projected on our last conference call. But overall, in a long period of time, we believe the 10% growth target organically is something that we strive for. We always say the, over the long period of time, the high-single digits or close to 10% is something we strive for. But obviously, it varies by the natures of when we win new accounts.

Sharon Esposito-Mayer

Yes. And the fact that -- if I can just add on to that. I mean, as we look into 2013, we really do expect our Learning Solutions segment, our Energy segment and our Sandy segment to continue to perform well in 2013. And as we look forward for even the Performance Readiness group, which was formerly called RWD, the thing that's a little bit transparent in the numbers is, in 2012, they actually won work that was performed by other organizations to the tune of close to $3.5 million. If that would've been in their numbers, they would've been closer to that 10% organic growth. The outlook for them in the first quarter and for 2013 right now, looks very positive. Professional & Technical Services obviously, has some struggles ahead of it, and first quarter for them is looking like a tough comp, and they'll probably have lower revenue in Q1 of 2013 than they had in Q1 of 2012. But we're still optimistic that they will have a marginal growth throughout the remainder of 2013. If that just gives you a little bit more of an insight by segment.

Joseph D. Janssen - Barrington Research Associates, Inc., Research Division

It does. And then, given the fiscal cliff back in December, did you guys see any push-backs or delayed in purchasing or RFP proposal or was it business as usual?

Scott N. Greenberg

The fear of it happening, but we really did not see it.

Joseph D. Janssen - Barrington Research Associates, Inc., Research Division

Okay. And then one last question on the financial service side. I heard your comments with -- regarding SunTrust. And then there were some high-level comments made on the other 4, I think. Are you seeing any more proposal activity out there or in terms like being able to bid on new services within the existing 5 customers? Maybe you could just comment on that.

Scott N. Greenberg

We are seeing a significant amount of proposal activity in the financial service sector and we're pretty confident that is going to be an area that will be a very positive impact on GP Strategies from the second quarter of 2013 on forward.


The next question comes from the line of Jeff Martin.

Jeff Martin - Roth Capital Partners, LLC, Research Division

Scott, could you kind of characterize how you feel about the training industry today? It seems like there was a lag in the recovery from '09, where in '10 and '11 you really didn't see a pickup all that much, and then in '12, you really did see a rebound. Is that consistent with what you're seeing, and are you seeing that strength continuing?

Scott N. Greenberg

The first thing is, we are seeing the strength continuing. But let me give you just a little on what I believe was the dynamics of the training industry from 2009 to the present. When the downturn in 2009 hit the economy, the first reaction by all companies was just to cut expenses, and we were cut particularly hard in the automotive industry due to the reorganization of General Motors and some of our other technical industries as well. And that was the initial reaction. Now companies are looking at training and realizing, it's a requirement of their organization. They realized that it said that technology changes every 4 years. So all work is pretty much have to be trained constantly because what they were doing 4 years ago or 3 years ago or a year ago is different than what they need and the skills that they need today. The companies realize this and now the question is, is how do they best train their workforce to compete in the future. 25% of our revenue today is in sales training and 75% is in other training and services. So when the companies that are evaluating, the first question is, should they be doing this inside or in-source or should they be outsourcing the solution. Today, we estimate over 60% of all training is done by companies in-house training departments. So we believe that due to cost effectiveness solutions, we're typically 15% or more cost-saving to our customers due to our e-learning capabilities, due to our tools that outsourcing is going to be a wave of the future. So even if the spend doesn't increase as much as we like, the switch between in-sourcing and outsourcing is enough to generate significant increase revenue for GP Strategies. One of our most successful customers in 2012 is a large financial institution. And in their case, even though they've laid off work as they cut expenses, one of the ways that they've become or became more efficient in our area is to outsource more and more training to GP Strategies, and we've become effective in delivering it more in the e-learning platform, thereby saving the customer money. So the long answer to the question is, we believe that our trends are continuing due to the change in the outlook of companies doing training in-house as opposed to outsourcing.

Jeff Martin - Roth Capital Partners, LLC, Research Division

Okay, great. And then do you foresee any additional acquisitions in the U.K. job skills area in 2013?

Scott N. Greenberg

Yes, we do. Right now, our revenue has gone from a low of about GBP 5 million or $7.5 million to now, we're over GBP 25 million. This is the area in the job skills we're able to leverage our administrative, our people, so the contracts come in after innovation, and we typically get nice profitability on that. Originally, what happened in the U.K. is they were talking about eliminating all vendors below GBP 5 million, which was a significant amount of vendors. They originally went to GBP 500,000. So all vendors below GBP 500,000 have been eliminated of the close of the potential fear that is going to be further consolidation, we continue to see a lot of opportunities to improve and enhance our platform. The return on -- that we've gotten on these investments have been extraordinary, with the average investment having a cash return of less than 3 years.

Jeff Martin - Roth Capital Partners, LLC, Research Division

Okay. So you're seeing more along the vicinity of the GBP 3 million to GBP 5 million businesses go up for sale?

Scott N. Greenberg

That's correct.

Jeff Martin - Roth Capital Partners, LLC, Research Division

Okay. And then Sharon, could you give us what the incremental contribution in 2013 would be from acquisitions that did not have revenue for full year in 2012?

Sharon Esposito-Mayer

Are you looking, Jeff, for the revenue figure or are you looking for like the bottom line?

Jeff Martin - Roth Capital Partners, LLC, Research Division

The revenue incremental revenue from acquisition. If you -- I guess, if you gave us the contribution in 2012 and a what the pro forma contribution from just those acquired companies in 2012, would've been like back into the difference?

Sharon Esposito-Mayer

Yes, sure. I'm just going to try to ballpark this for you. I'm going to do it by acquisition, just because then I can think through it in my head that way, I'd say there's probably another incremental $4 million of revenue for the Asentus acquisition. There's probably about another $8 million of incremental revenue for the -- I'm sorry, for the BlessingWhite acquisition. And there's probably about another $3 million of revenue for the Rovsing acquisition.

Jeff Martin - Roth Capital Partners, LLC, Research Division

Okay, great. That's very helpful. And then my last question. With 25% growth in automotive, how do you feel for prospects for continued growth in 2013 or for that segment?

Scott N. Greenberg

Well, I'd be foolish to predict that it's going to grow another 25%. However, that being said, we think our automotive industry does have the ability to continue to grow double digits. We are looking to expand into new customers. So we do have proposals out in customers we historically have not done business with. Today, we are doing business with General Motors, which is our largest customer, as Doug mentioned, and Hyundai, which is about our third largest customer. However, Ford, Jaguar and Chrysler, overall top 15 customers of GP, and in Chrysler we're doing work more on technical basis than the sales basis, but that still leaves a lot of automobile manufacturers that we're currently not doing business with. And in addition to increasing revenue would be 5, we are also looking and bidding on activity outside of these 5 as well. So based upon that, we believe the prospects are very strong going into 2013.


The next question comes from the line of Kevin Liu.

Kevin Liu - B. Riley & Co., LLC, Research Division

Maybe just building upon some of the job skills counsel questions. Has there been anything you've noticed in the broader environment that would preclude you guys from being -- from doing more acquisitions, say, in the past couple of months here? For instance, do you think that the government would need to up kind of that minimum threshold for revenues before potential sellers start to get more serious about negotiating?

Scott N. Greenberg

The government, Kevin, is actually taking the policy of reviewing all acquisitions before they get done. And that actually bodes well for GP. Based upon the audit, which we gave out in a press release of us receiving higher -- very high rankings, all 1 and 2, it puts us in the good graces of the government in order to have the ability to innovate these contracts. So I think, what we are doing get lot with the government insight and the government report. The thing to realize, as part of this report as well, is that not only have we've done very well from these acquisitions, but the learners have done very well from the acquisitions. So the level that the learners have performed in both in relationship to learning the criteria, getting the new jobs has put GP at a higher level because the learners are performing better. So the thing to recognize here is not only we're acquiring these companies, but under the GP banner, the students are doing better, and that will help us with the job skills agency in making additional acquisitions.

Kevin Liu - B. Riley & Co., LLC, Research Division

Got it. And as we look out into 2013 here, if you were to look at your top 10 or top 20 customers, are you expecting growth pretty much across the board or are there any pockets of potential weakness we should be aware of?

Scott N. Greenberg

Well, when you combine it, the one area that we have not performed well is the government, and when you combine all the government, not just the Army. So we have commented on the government before. The thing to realize when you look at GP Strategies' revenue is the government in 2005 roughly, was over 40% of our revenue, and now it's down to 12%. So we've made a conscious effort to do the expansion in other areas. And just looking at that, the top 20, the only customer in the top 20 that we haven't seen the potential to increase is a large defense contract that we have that sells helicopters in Europe. And basically, because of the coming to a conclusion of the war in Afghanistan and Iraq, we've seen a turn down in that business, but not material. But other than that, we focus our top 20 customers to grow. As we mentioned earlier, approximately 50% of organic growth came from current customers, and we don't see why that trend should not continue.

Kevin Liu - B. Riley & Co., LLC, Research Division

Okay. And you guys have talked for past a couple of quarters about a robust pipeline opportunities. In terms of how quickly those are moving forward, are they progressing on pace with your expectations? And then, is the timing of when these are expected to be awarded fairly spread out over the course of the year? Or are there particular time frames when you think they might be concentrated in?

Scott N. Greenberg

Well, I would say right now, if you're looking at 2 areas in particular, I would say, it's within in that 60 days. So I believe there's a lot of potential for sizable awards in both the energy space and the financial service sector space, which would be coming early second quarter. Other than that -- and that's material, by the way. But other than that, I would say the awards would be fairly spaced throughout the year, how it usually is, except for this fact that we have a lot of significant proposals in these 2 industries in the pipeline right now, as we speak.


The next question comes from the line of Gary Drougar [ph].

Unknown Analyst

Two questions. One, I think, is for Doug. Sorry, I think, I missed at least one, but you were talking about new content development wins. If I've heard right, one was fast food company, the other was a regional bank, if you could recap those, that would be great.

Douglas E. Sharp

Yes. We had the 3 content development award outsourcings. I said they were multiyear, they're all are 3 years long. One was with a large aerospace defense contractor in the United States. One was a regional bank, I think Scott mentioned it, PNC. And the other one was a large, you would know who they were, a large fast food -- global fast food company. And on the last one, the fast food company, they awarded us what they're calling a pilot. They don't normally or have not historically procured services from an outsourcers providers. This is the new to them. They are running a pilot. We're putting content development around their global operations first, not North America. And they're really seeing how it's going to go. So we're just sort of testing, as we think that will go that way through the balance of 2013. If it goes well, they've got plans for expanding that model with GP.

Unknown Analyst

And the other question I had was for Sharon, and sorry, I missed it, but I believe, as you were -- in the remarks then talking about Performance Readiness Solutions, some revenue transferred to Sandy Training & Marketing. If I heard that right, if you could please tell me about what actually what was transferred?

Sharon Esposito-Mayer

Sure. In 2012, there was about $400,000 of revenue that was performed by the Performance Readiness group in 2011. That work was actually transferred to Sandy in 2012. So that is included in Sandy's revenue. The other comment that I made was the Performance Readiness segment actually won and -- marketed and won about $3.5 million of work in 2012 that was performed by other segments in the company. So those were the 2 comments that I made.


[Operator Instructions] The next question comes from the line of Ross Taylor.

Unknown Analyst

You guys looked like you're set to generate substantial free cash flow going forward. Can you give thoughts on acquisition opportunities at the kind of historic levels you've been achieving? I mean, we've seen you in the past 2 deals 2x, 3x adjusted EBITDA-type levels. Obviously, the last deal was done at a higher price. Can you still get these low-hanging deals?

Scott N. Greenberg

Well, Ross, looking at deals, it depends on the situation. For example, in the U.K., the acquisitions we've done, we're just getting contracts innovated, and we're taking over the arrangement. So in that area, we can. In the RWD transaction, we were able to eliminate close to $7 million of general and administrative expenses from the first day. That obviously, lowered the multiple of EBITDA when we bought that company. We are seeing an increase in values of training companies as well. So I would say that, while -- we're always targeting 5x or 6x EBITDA. The BlessingWhite deal was done in the little in the north of 6x EBITDA. So we have seen that. However, it's still -- when we do it on a pro forma basis, it's still in an arbitrage situation to what GP Strategies EBITDA trades at as a much larger company after the elimination of expenses. And because of that, we -- when we evaluate the deals, they typically are accretive to our earnings per share and our company's operations. But we have seen an increase in prices for acquisitions that we're looking at. Looking at the -- your second part of your question with the free cash flow, looking at the results of last year. As we said, we did generate close to $23 million in free cash flow. We put a big chunk in the acquisitions. We also bought back stock, of which over $2.5 million was in Q4 in dollars. So we evaluate our excess cash on a regular basis. Historically, the 2 areas we've done is acquisitions and buyback. When you talk about the last decade, going back, since 2006, we spent over $40 million on buying back shares in the open market and eliminating our Class B structure. And I think, if you add it all up, we spent close to $100 million on acquisitions. So that's $140 million that we've spent since the beginning of 2006. And still, when you look at the company today, we're looking at a company that, as of last week had $16 million in the bank and no debt. So that is truly a testament on -- to the free cash flow that we're able to generate. Because we are mainly a custom shop, typically all our cash comes in either AR or free cash, and there typically isn't a lot of fixed asset additions or capital appropriations, which is one of the great part of the business. So we've been able to build the business without debt and the only equity transaction we did is when they brought in Sagard capital as a partner at the end of 2009, and they put in $20 million into the company. And it's obviously, been a very successful relationship among the 2 entities. So that's really where we stand on the free cash flow.

Unknown Analyst

And is it wrong to assume that your free cash flow over the next 12 to 18 months should grow substantially as your business grows?

Scott N. Greenberg

Well, judging by January and February, the answer is obviously yes. January and February was the strongest 2 months of cash flow in the company's history. So if those 2 months are any indication, the answer is a yes.


It appears at this time that there are no further questions. I'll turn the presentation back over to you.

Scott N. Greenberg

Thank you, moderator. Well, it's a pleasure talking to you today. As I mentioned earlier, we hope to see many of our shareholders and investors at some of the presentations we are doing. I'd like to take this opportunity to thank the employees and the senior management of the company for doing a great job in 2012 and many years before. I'd like to thank the Board of Directors for their strong support in the process of revitalizing GP Strategies and making it a full training company and performance improvement, solely focused on the industry. And thirdly, I'd like to thank our shareholders for the support that they've given us. So we look forward to seeing you in the future.


Thank you, ladies and gentlemen. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you, and have a good day.

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