GP Strategies' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.25.14 | About: GP Strategies (GPX)

GP Strategies Corporation (NYSE:GPX)

Q4 2013 Earnings Conference Call

February 25, 2014 10:00 am ET

Executives

Ann Blank - Director, Financial Reporting & IR

Scott Greenberg - CEO

Sharon Esposito-Mayer - CFO

Douglas Sharp - President

Chris Sproule - SVP

Analysts

Josh Vogel - Sidoti

Jeff Martin - ROTH Capital Partners

Kevin Liu - B. Riley

Joe Janssen - Barrington Research

Operator

Good morning. My name is Evelyn and I'll be your conference operator today for the GP Strategies Fourth Quarter 2013 Earnings Conference Call. (Operator Instructions). As a reminder, this call is being recorded. Thank you.

I'll now turn the call over to Ann Blank, Director of Financial Reporting and Investor Relations. Please go ahead.

Ann Blank

Thank you. Good morning, and welcome to GP Strategies Fourth Quarter 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 gpstrategies.com. A replay of today’s call will also be available on our website later today.

At this time, I'd like to turn the call over to Scott.

Scott Greenberg

Thank you, Ann. Good morning and welcome to our fourth quarter 2013 conference call. Just to comment on the weather we are having another snowy day in Columbia, Maryland.

Today, we will follow our usual quarterly format. To initiate the call, I'll provide a brief overview of the results of the fourth quarter of 2013. Then, Sharon will present an in-depth financial analysis; Doug will give some key updates on our recent major awards, including a current update on our global initiative with HSBC. After his presentation, I'll focus on our acquisition strategy, future vision and the company's plan for long-term growth, and then we'll conclude with our typical Q&A session.

I'm extremely pleased to report another solid quarter today. We achieved record revenue for both the three months of fiscal year ended December 31, 2013. The strong financial results were accomplished while expanding infrastructure to enable the company continue on its path a growth and international expansion. Included in our results are costs associated with implementing the global contract with HSBC under which the local service agreements were signed in September. Our goal continues to be to further establish GP Strategies brand in the highly fragmented training industry.

In the quarter, we are also pleased with the success we are achieving in our Energy Group's alternative fuels operation and we continue to diversify our business internationally as our global clients look for increased levels of support. In addition, we've opened or prepare to open approximately 10 offices internationally during the second half of 2013. Again, a testament to our plans for long term growth.

As far as revenue, for the quarter ended December 31, 2013 revenue increased from a $106 million to $117.2 million from approximately 11%. This is an extremely positive development. We had strong organic growth from both our Learning Solutions and Energy Services Group. In addition, during the quarter there was a substantial diversion of key personnel working on integrating the HSBC contract and incurred costs are included in the quarter. These costs will continue to impact our first quarter of operations in 2014.

EBITDA for the quarter was $14.7 million and a record of $47.5 million for the year ended December 31, 2013. This approximated $2.45 per share for the full year. Even excluding the gains in fair value of consideration it was still $2.37 per share for the year, again a record. Despite our acquisitions and investments in the year, our balance sheet remained strong.

Next I would like to comment on the training market. Looking at the training market, we understand it's highly fragmented. We believe we have the ability to grow our operations and our recent wins clearly state our positions as one of the leaders. We believe our differentiators are our strong technical expertise, our global reach and our cost effective solutions. This combination was really the key to our long term success.

On previous calls, we discussed initiatives to expand in the financial service sector. With the major HSBC award we will have approximately 4 of our top 15 customers in the financial service sector on a run rate basis. This win has already being noticed by the industry and competitors alike. In addition, Doug will shortly discuss additional long term contracts and renewals received from numerous customers. It is very important as long term contract represents over 90% of GP's revenue on a recurring basis.

Since 2006 we made approximately 25 acquisitions and we are continuing to see significant more cross-selling opportunities. In 2013, we made two acquisitions. In addition, we have made acquisitions predominantly through the cash flow generated from operations and incurred very little or minimal debt. In the future, we see expanding leadership training, e-learning, global delivery, human capital as the areas to grow our company. Our recent wins clearly demonstrate we are on the right path.

In addition, over the past decade we have reduced our lines on contract from the US government. The US government currently represents approximately 10% of our total revenue where in the last 10 years the high was approximately 40% of our revenue. So we really modified the business from a governmental organization to a commercial organization.

With that being said, I'd like to turn the call over to Sharon, who will give a detailed financial presentation for the quarter.

Sharon Esposito-Mayer

Thanks, Scott. Good morning, everyone. As Scott mentioned, we are pleased to report fourth quarter revenue of $117.2 million or 11% growth over the fourth quarter of 2012 and annual revenue growth in 2013 of $35.1 million or 9%. We achieved organic revenue growth in the quarter of $6.7 million or 6%, and 2% for the full year.

We derived strong revenue growth in the fourth quarter from our Learning Solutions and Energy segments. Revenue in the Learning Solutions segment increased by $7 million or 15%. The Lorien acquisition, completed in June of 2013, contributed $3.2 million in revenue and the Prospero acquisition also completed in June of 2013 contributed $1.4 million of revenue in the quarter.

The remaining $2.4 million of organic revenue growth in the quarter was due to $3.1 million increase in revenue from e-learning and training outsourcing clients primarily in the financial sector. This increase was partially offset by $700,000 net decline in government funded skill training and other training services in the UK.

The Energy segment had a $5.8 million or 62% increase in revenue in the quarter. The increase was largely due for a $7 million revenue increase from alternative fuel projects, especially offset by $900,000 decline in revenue from the Rovsing acquisition completed in September of 2012.

The revenue growth in the Learning Solutions and Energy segments was partially offset by a slight revenue decline in our other segments. There was a net $500,000 decline in revenue in the Sandy segment primarily due to a $1.2 million non-recurring launch event in the fourth quarter of 2012, which was offset in part by increases in publication and portfolio revenue in the quarter.

Fourth quarter Publication revenue was $2.8 million which represented a $300,000 increase over publication revenue in the fourth quarter of 2012. We are projecting $300,000 of publication revenue in the first quarter of 2014 in comparison to $500,000 in the first quarter of 2013, and down from the $2.5 million of publication revenue in the fourth quarter of 2013 due to publications primarily shipping in the second and fourth quarters of the year.

The Performance Readiness segment provided $12.4 million of revenue in the quarter down $600,000 from the fourth quarter of 2012 due to a decline in system implementation training services.

Professional & Technical Services revenue decreased $500,000 due to the decline in Homeland Security, Chemical Materials Agency and environmental remediation services for the US government due to certain contract concluding.

The Automotive sector comprises 16% of revenue in 2013, down slightly from 17% in 2012. And Financial and Insurance is now our second largest market sector comprising 11% of 2013 revenue, up from 7% in 2012.

As Scott mentioned, US Government now comprises 10% of our revenue in 2013. It is our third largest sector and it is down from 12% in 2012.

General Motors remains our largest customer and comprised 8% of revenue in 2013, which is consistent with 2012.

Our revenue earned from operations outside the United States represented 20% of our revenue in 2013, which is up slightly from 19% in 2012.

Gross profit increased in the fourth quarter by $2.2 million or 11%. The Lorien and Prospero acquisition contributed $800,000 of the increase in growth profit and the remaining $1.4 million increase was primarily due to the organic revenue growth in the Energy segment and improved profit margins in our CMA and Performance Readiness Solutions segments.

SG&A increased in the quarter by $1.5 million. The main drivers for the increase in SG&A are the $600,000 increase in labor and benefits expense, $100,000 increase in the amortization expense, and $600,000 of net increases in IT infrastructure, software, business insurance, depreciation, and other expenses primarily related to the acquisitions that were completed in 2013 and our international expansion.

We also incurred approximately $200,000 in the quarter related to the set up of new foreign subsidiaries.

During the quarter, we recognized $1.2 million 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 $100,000 gain recorded in the fourth quarter of 2012.

Operating income increased by $1.9 million or 19% in the fourth quarter. The contingent consideration adjustment provided $1.1 million of the increase over 2012. Excluding this amount operating income increased by $700,000, as a result of the $2.2 million increase in gross margins offset in part by the increase in SG&A expense. The combination of interest income and other income remained relatively flat over 2012.

Fourth quarter 2013 income before taxes was $12.2 million or $1.9 million improvement over the fourth quarter of 2012. Excluding the $1.2 million contingent gain on consideration, income before tax improved $700,000 or 7%.

Tax expense was $4.7 million in the quarter or a rate of 38.9% compared to 40.1% in the fourth quarter of 2012. We derived a larger portion of our 2013 income from lower tax foreign jurisdiction, which is a contributor to the decline in the rate over 2012.

In addition, no tax expense was recorded on the $1.2 million contingent consideration adjustment. We also incurred $400,000 of foreign losses in the quarter and $1.9 million of foreign losses in the year for which we booked no tax benefits.

Fourth quarter net income was $7.4million or an improvement of $1.3 million or 21% over the fourth quarter of 2012. And fourth quarter earnings per share was $0.38 compared to $0.32 in the fourth quarter of 2012. The $1.23 of 2013's earnings per share for the year reflects a 5% improvement over 2012.

Moving on to a few balance sheet highlights, our cash balances were $5.6 million at December 31, 2013, compared to the $7.8 million on hand at the end of 2012. In 2013 we spent $13.5 million net of cash acquired to complete acquisitions, plus $1.7 million on contingent consideration payments for acquisitions previously completed.

Other cash uses in 2013 included $1.7 million of share repurchases. We generated $16.3 million of cash flow from operations in 2013, which was comprised of year-to-date income of $23.8 million plus non-cash add back to net income, including depreciation and the amortization of $8.6 million, and non-cash compensation expense of $3.7 million, offset in part by a $300,000 change in deferred income taxes and a $1.7 million gain on contingent consideration.

In addition there was a $17.8 million decrease in cash from changes and other operating items, primarily due to an increase in accounts receivables and cost in excess of billings on uncompleted contracts.

Fixed asset additions were $6.7 million in 2013 compared to $2.5 million in 2012. We generated free cash flow in 2013 of $9.5 million compared to $22.8 million in 2012. The increase in fixed asset additions in 2013 was largely due to the relocation of our headquarters in the third quarter of 2013, and increase in software licenses due to the addition of employees and an investment in computer equipment and data center infrastructure to support our expanding foreign operations.

At the end of December, backlog was $239 million in comparison to $221 million at the end of 2012, and $237 million at the end of the third quarter of 2013. Approximately 95% of the backlog will be recognized as revenue within the next 12 months.

That concludes the financial overview. I do want to mention since we normally file our 10-Q and 10-K immediately after call that we will not be filing our 10-K until later in the week. We expect to see it filed by Friday at the very latest.

And at this time, I will turn the call over to Doug who will discuss some operational highlights.

Douglas Sharp

Thank you, Sharon. As Scott and Sharon have indicated, 2013 was certainly a busy year for the company. All group performed record services under contract, and we also continue to build our capabilities and develop our processes to support our global customers.

From that point, let me start with an update on our Fortune 500 global customer count. As of the end of 2013, we supported 109 of the Fortune global 500 companies. This is up from 99 as of the close of 2012. In U.S., we faired even better, as we supported 152 of the U.S. Fortune 500, as compared to 141 at the end of 2012. It is safe to say that GP Strategies provide brain development and professional improvement services to companies that are the leaders in their respective markets, including automotive, energy, technology, health care, food and beverage and in aerospace.

And as Sharon mentioned, our fastest growing sector is financial with customers like Bank of America, SunTrust, PMC and HSBC. As HSBC is a significant win, let me give you an update on where we are at today.

In July, we signed a master services agreement with HSBC Holdings company in London and by September, we continued negotiations and signed local services agreements with HSBC entities in the UK, the U.S., Canada and Hong Kong. We have recently completed negotiations and are close to signing additional LSA, Local Services Agreements for HSBC entities in Taiwan, Egypt and the United Arab Emirates.

During the last six months of 2013, in the U.S. we have some carryover in the 2014. Significant effort by both GP Strategies and HSBC was given to transition and transformation of aligning development work to be performed.

Here is the big news. I am pleased to report that the first employees transfer from HSBC UK staff occurred in December followed by staff in U.S., Canada and Hong Kong in January. Work strings for learning development for HSBC as an officially transferred GP Strategies in these countries.

In summary, in HSBC, we are tracking to schedule and expect transition and transformation to be completed for all work to be transferred by the end of Q2.

Another strong performance area for the company is our work with alternative fuels. In Q4, we put into service three liquid natural gas fueling stations for UPS and they are each presently fueling trucks on a daily basis, they work. We expect to put into service 10 more stations before the end of Q3. Eight of these stations are currently under some stage of construction.

As busy as this group is our alternative fuels group is, we are seeing additional opportunities and awards. We do several proposals outstanding and we were recently awarded two LNG facilities at the design stage to support power generation projects in Canada also to be completed by the end of the year.

There is one another announcement before I turn it over to Scott for closing remarks. Our performance in Technical Services Group has placed increased emphasis on expanding our work in oil and gas industry and we are starting to see some gains. In Q4, we were awarded a two-year project with Kuwait Oil Company for the development of procedures and training manuals. This work supports upstream operations and facilities in the south and east of Kuwait.

Those were some of the highlights for the group. Scott mentioned and I have mentioned some of the follow-ons that we received. I mentioned this in the last call that we are very successful at the end of the year to capture the follow on work that General Motors, Augustus Westland, Microsoft, Cigna which is still in a verbal we're still working through the contract part of that. So many of our large outsourcing providers has signed up for at least one year if not one to five year depending on the client. So all good news all the way round for a solid platform for 2014.

I will turn it back over to Scott.

Scott Greenberg

Thank you, Doug. As Doug mentioned, the oil and gas business and performance and technical services that was one of our segments that was showing a decline in the last period of time. So getting some good news in that part of the industry, in that part of segment is very good for us.

One of the things I wanted to discuss now is, as we go through the call we focus on the quarter and we did report our quarter. But one of the things I want to talk about is going back over an extended period. In 2009, after the downturn in the economy, we talked about a new GP, we talked about our plans, we talked about where were going. We think right now, we are developing the next phase of GP Strategies Life. But let's look at that four years and let's start with the first year and go to the fourth year. In 2009, our revenue was $219 million for the year and this year it was $437 million, that's a 100% increase in a four-year period.

Our EBITDA in 2009 was $17.2 million and that's up to $47.5 million or 176% increase. So you could see as we grow our business models, we're able to leverage our cost and increase it. So again, in a four-year period a 100% revenue increase close to 200% profit on the EBITDA. And at the same time, as we talked during the call, we developed a team, we developed our talent to get the company to a next level and that was a big investment we made in the second half of the year.

As far as acquisitions go, I mentioned we did 25 plus acquisitions since 2006. Areas that we'll be looking at include leadership; we announced the human capital deal with Effective-People, eLearning, and global reach. Most of the deals we're looking at are tuck-ins and in most cases are accretive to earnings per share.

As far as investments, you heard during Sharon's presentation, we did make an investment in people, infrastructure and personnel, and while our big cost cuts earnings per share in the fourth quarter and third quarter, we believe in order to grow the company substantially that this investment was needed going forward.

Lastly, before I turn it over to Q&A, is on the investor side. Hopefully, a lot of you came to our investor meeting that we had in January. We actually had a full house. I'm proud that so many people could come and so many of the analysts could come as well.

In the next three months though, we do have a lot of our investor meetings, so I just want to get a little bit of a recap on that for those of you who that will be there. In the month of March we have ROTH on March 10, week of March 10, and then we have Sidoti the midweek of March 17, and then in May we have both the Riley and Barrington Conference. So we've a full play as far as investor meetings in the next few months and hopefully we could see you there as well.

With that being said, I'd like to turn it over to the Q&A period, and I thank you for participating on the call.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Josh Vogel, Sidoti.

Josh Vogel - Sidoti

First question, now that the HSBC news has been out there seven, eight months and everything is tracking on schedule, can you just talk about a little bit more about the potential client pipeline you're seeing in financial services?

Douglas Sharp

Meaning the pipeline outside of HSBC.

Josh Vogel - Sidoti

Yes.

Douglas Sharp

I can't mention names obviously but there are some firms up in New York I'd be saying where we've done some presentations. This is Doug, Josh, and I'd say we are -- I got the count right three different institutions that we're tracking opportunities with. None of them are at the holistic outsourcing that HSBC has, most of them are talking about smaller like Bank of America and PMC. Still very good size jobs for us but we're talking about content development and the like. So that's really where we're at.

Scott Greenberg

One of the things that I add to that to what Doug is saying, Josh, is while we're also seeing in the -- publicity of HSBC and what we're doing with other customers, we're now starting to see some of the opportunity to cross-sell some of our services. So for example, one of the fast growing items we have in 2013 was the leadership training company we bought BlessingWhite. We are now selling BlessingWhite services and leadership training into some of our other customers.

BlessingWhite growth, if you look at it, their growth on a year-to-year basis even though they weren't included in the full year in 2012, but if you look at what they did externally before GP purchased them we were able to grow that business in excess of 20%. So there are areas that even among our current customers that due to our main reputation we are starting to cross sell.

Josh Vogel - Sidoti

Okay. That's helpful, thank you. You mentioned that the UK job skills revenue was down a little bit. I just wondered if you could talk about the environment out there, are there any news or developments and potential for further vendor consolidation?

Scott Greenberg

Yes, I mean, one of the things that happen in the jobs skills that affected the fourth quarter was that the UK government changed some of the arrangements on what they call learning loan, which is part of our sector, where the over 24 students they wanted to take loans as oppose to fund it directly. That program has been proven to be unsuccessful. So now they are switching back to the old format which would enable us starting in March to re-raise our revenue from back to more than current levels. So there was a change in the program that did impact us for about a three month period but it should be back to normal shortly.

As far as the consolidation goes, there seems to be more of a consolidation not by them eliminating vendors due to size, but by them eliminating vendors due to them not achieving the grading that are expected of them in the marketplace. On that we're beyond the funding issue which just recently ended, we will now starting to look to grow the business again, but really the last three months we were concentrating on getting our business back to the old level due to the changes in funding which now they have eliminated anyway.

Josh Vogel - Sidoti

Okay. And Sharon, I'm sorry, I think I may have missed it. Did you talk about you CapEx expectations for 2014? And could you also talk about where you see free cash flow tracking this year?

Sharon Esposito-Mayer

Sure. No, I did not mention fixed asset expectations for 2014, but I would definitely expect the fixed asset addition in 2014 to go back to more normalized level. So I would expect those to be somewhere between $3 million and $4 million of fixed asset addition in 2014.

In terms of cash flow expectations, the non-cash compensation expense that we had of roughly $3.7 million and the depreciation and amortization add back of $8.7 million, I think those are probably good numbers and estimates for 2014 as well. The harder number to project is the changes in the other operating items like accounts receivable and earned unbilled. So I would expect us to see some increase in accounts receivable and earned unbilled as we expect to grow the business, but normally we would like to see that be somewhere around 10% of our revenue growth and be able to bring that down to more normalized levels from what it was running this year. Is that helpful, Josh?

Josh Vogel - Sidoti

Okay, great. Yes, definitely. And just one last one and I will jump back in the queue. Doug, you mentioned that the HSBC ramp is on track. So I just want to confirm that it will be fully ramped by the end of Q2?

Douglas Sharp

Yes, I should be fully ramped, I mean, that is our expectation. We would be fully all learning and development services transpired by all entities across HSBC's enterprise will be turned over to GP that's what's scheduled, Josh.

Operator

(Operator Instructions). Our next question comes from the line of Jeff Martin, ROTH Capital Partners.

Jeff Martin - ROTH Capital Partners

Could you remind us how the HSBC contract is structured in terms of revenue generation? My understanding is there are some variability potential in the contract and it would be good for you just to kind of remind us how that is structured and how much visibility you have into it because my understanding is that it could be $30 million to $40 million a year annualized once its up and fully ramped?

Sharon Esposito-Mayer

So Jeff, I'm going to take a crack at that and let Doug jump in if I say something that is not exactly correct. There are different revenue streams relating to the HSBC contract. So right now, we are primarily -- aside from the employees that we brought that fulfill inspector roles as well as some other roles under the contract the main work strain that we have been working under was a transformation work strain where it has a fixed funded contract for about $4 million or so, and that's just the initial phase in which we're working with them to kind of transform over processes and the procedures and the like.

In addition, to that we have an e-learning content development revenue stream in which individual steps of work will be issued to us and we will perform e-learning content development and for a rate schedule. It's really a rate for our schedules and those will convert into fixed price tech orders based on the rates for hour in the contract.

In addition, we have instructor rates. And those are probably more like a time and material rate where we will bill hourly rate for the instructors providing instruction under the contract. And then we also have a subject matter --

Douglas Sharp

Service management.

Sharon Esposito-Mayer

I'm sorry, a service management strain which is also a fixed price stream under the contract that's ongoing throughout the contract. Those are the primary strain so, it's really a combination of fixed price individual funded back ordered some fixed price revenue stream that will occur annually as well as fixed rate per hour that will basically generate revenue on in accordance with instructor delivery. I mean, Doug, is there anything you want to add to that?

Douglas Sharp

I would say the only thing we would add is we laid out the MSA with the client with the Westlake plants and then march then if you will but as additional work coming all around running major programs, regulatory initiatives across the enterprise, training coordinators administration so lots of bolt on activities that are in addition to the main streams that Sharon mentioned.

Jeff Martin - ROTH Capital Partners

Okay, but since you signed that master service agreement, how have conversations progressed in terms of possible contract expansion or at least beyond your initial expectation?

Douglas Sharp

I think its going to plan. I mean, they have a plan. I say they, HSBC fully intended to turn the reins of enterprise-wide learning and development to GP Strategies. I mean, soup to nuts. They are retaining what they call, Jeff, academies the sort of the organization there are six of them or so that line up with the lines in businesses of HSBC globally. So wealth management, commercial banking and down the line. And their charter is to identify the learning and development needs of their constituency, right, of the employees, the learners in those parts of the bank.

Once that's identified and getting it develop in the new training and getting it delivered and getting it executed in the most efficient way possible that is our responsibility across the board. So the expansion as we ramp up here is taking a more and more the content design, more and more the delivery by region, by bank, by academy and that is where the expansion is coming from.

Now, as far as -- I'm trying to figure out how far as you go in the call to be honest with you, but as far as opportunities for growth, there is a number of training vendors that have supported HSBC over the years and there might be some opportunities for GP to expand work in there as well.

Scott Greenberg

And Jeff, the only thing to add on to Doug is simplify it a little bit. We are having discussions with them in areas that were not in the original contract. So there is discussion that GP Strategies could work with them in other areas in addition to what is in the original contract according to that.

Douglas Sharp

Yes, Technology being one of them.

Jeff Martin - ROTH Capital Partners

Okay. And will that all fall into the Learning Solutions segment when you report revenue?

Sharon Esposito-Mayer

No, that would be too simple, Jeff.

Douglas Sharp

Yes.

Sharon Esposito-Mayer

Right now, it is primarily in Learning Solutions and then there's -- some of the transformation work is in our Performance Readiness Solutions segment, but there is smaller bits of it as well in Professional And Technical Services and I think Sandy even has a very small piece as well.

Douglas Sharp

But the majority of it will be in the Learning Solutions, probably 80%.

Sharon Esposito-Mayer

Yes.

Jeff Martin - ROTH Capital Partners

Okay. Could we just talk about segment opportunities or segment expectations for 2014 excluding HSBC? Just directionally would be helpful because we have had professional and technical, had a bit of a challenging first half of the year. It seems to have flattened down, we expect that to grow little bit, maybe if you can touch on each segment real quick. That would be very helpful.

Scott Greenberg

Sure. As I mentioned earlier, Professional & Technical Services has been in an area that in the last two years has declined for GP Strategies. One of the reasons of the decline was the work that we have done in the government and our environmental work. The good news is the declines are becoming a little less noticeable when you compare it from the prior quarter. So in the fourth quarter, the business was relatively flat compared to the fourth quarter in the prior year as opposed to the multi-million dollar declines we are experiencing at the beginning of the year and the end of last year.

As Doug mentioned, we are working in oil and gas and we believe there is opportunity there. So honestly, I would think that that business is an area that should grow slightly in 2014 starting in Q2. So that's an area that in effect is approving for GP.

As far as the Learning Solutions Group that's in the area that's been growing organically for GP and that's the area that is housing HSBC. And you heard about a lot of the opportunities that are in that group, so we could see that growing as well.

And then, we get into the third group that I will discuss and that is the Energy Group. And in the energy side, the UPS and other alternative fuels did not start really heading to the maximum to the second half of this year, so that group is going into the year with a lot of momentum because it has a full year at the current run rate of LNG facilities to work on. So in that area, we would continue to see growth, but as a percentage is probably on a comparative basis the growth will be more in the second quarter and the first quarter unless we continue to win major awards in that area.

Sandy had a relatively flat year in 2013 and -- even though it improved profitability. And we expect Sandy cooperation to be in the low-single-digit growth, but that is not going to happen until the second quarter of this year because one or two projects got delayed in the first quarter. So we are expecting growth but more likely occur from the second to the fourth quarter.

And then the last group Performance Readiness organization, same thing but for a different reason. Last year in the first quarter we had a very large national grid contract, which generated a lot of revenue. So again, we see growth. We see a lot of proposal activity from the Performance Readiness Group that will start in the second quarter.

So overall, going into the year as opposed to last year where we had some groups that declined, we're optimistic that all our groups should grow. Some of them should grow in the low-single-digits, but that will be offset by the Learning Solutions and the Energy Group that will have substantial growth due to HSBC, the alternative fuels and some of the other things we're working on.

Jeff Martin - ROTH Capital Partners

And then one last question I think Sharon, could you touch on the changing contingent consideration, which acquisitions that specifically relates to and maybe put some context around it would be helpful?

Sharon Esposito-Mayer

Yes, sure. The reduction that we made in the fourth quarter, Jeff, primarily related to the Prospera acquisition in Canada. They had one of their contracts end not for any performance issues on their part, but as a result of that we ended up reducing our estimated year-one earn out payments. The outlook for them continued to look extremely positive. They are involved in some of the outsourcing and eLearning content development opportunities that we're tracking that Doug mentioned and have some expansion opportunities with the clients that they brought into the fold as well. It just looks like year one may be impacted as a result of this one contract spending.

Scott Greenberg

And they'll be more than likely be working on HSBC as well. So that's why while we lowered the year one outlook, we kept the earn out for year two because we think they're going to improve substantially with all the new work coming in.

Operator

Our next question comes from the line of Kevin Liu, B. Riley.

Kevin Liu - B. Riley

Most of my questions were kind of on the energy segment and certainly you guys have a good year in store for you now. As you look at the pipeline and may be have some discussions with UPS about additional opportunities, what sort of visibility do you have into perhaps fiscal '15 and beyond in your ability to continue growing in that segment?

Scott Greenberg

Well to start off, the one of the things that was good about the alternative fuels group is we did demonstrate this year that as we grow revenue substantially, we do have an increase in operating margin. So let's start off by showing that when we're doing $6 million or $8 million, we talk about it being a very low margin business. But as we do a multiple of that it becomes a profitable business, the GP Strategies.

Right now, like most of our other businesses we're looking at the energy, alternative fuels, GP Strategies, other than the BPO outsourcing, typically where we get multi-year contracts and in HSBC we get multiyear contracts. Most of our businesses don't run on that type of multi-year contracts but we do have recurring revenue from our customer base. Right now, we believe with what we have that we are good through all of '14 and probably the beginning part of 2015.

But that being said, as Doug mentioned, we are seeing a lot of proposal activity, a lot of people coming to us. So while we made a few new contracts that we closed that Doug talked about the ones in Canada, we are seeing proposal activity and we're seeing additional conversations with companies even including UPS. So while there is nothing firm at this point, we do see a very favorable pipeline.

Kevin Liu - B. Riley

And I know you guys have talked about some investments made into Rovsing over the past year. May be talk about where you are in terms of kind of development efforts and what sort of impact that could have on both the growth and margin profile of the energy business this year?

Scott Greenberg

Well the one thing that happened in Rovsing is we did spend money on the technology integrating it, bringing it over. So Rovsing looks in excess of $1 million in 2013. That being said, the technology has been transferred over. So we were able to cut down the staff dramatically in Denmark which will automatically reduce the breakeven point for the company and reduces loss.

Right now, we have started marketing it as part of our what we call the three stool technology and we are integrating that to do it, which means we have vibration analysis, which our Rovsing for predictive maintenance, we do efficiencies of power plants and we have analytical work as well that measures power plants. So we are starting to. One example of a benefit that we did receive is the energy group just received a $500,000 contract from one of Rovsing's customers. So we are starting to see that cross initiative. But to be honest there was a lot of more cross wave and it took longer than we anticipated to move the technology over, but the staff size of Rovsing is approximately 50% of what it was when we bought the company. So we shouldn’t suffer the type of operating losses we have and when we starting generating revenue it should become profitable.

Kevin Liu - B. Riley

And then just one last one. With the acquisition of Effective-People can you just remind me when that actually closed and how much revenue contribution you would expect kind of in Q1 and then over the course of the year?

Scott Greenberg

Yes, we don't expect it to close in Q1. So it hasn't closed yet. We're working to close it and will close it as soon as possible, but as we're already at the end of February the revenue and the profitability will be minimal to none in the quarter. The only thing we will have is probably some legal expansion relating the transaction. It should start contributing in Q2. The revenue last year was -- we had even our press release, I think the revenue was running at about $6 million -- I'm just trying to remember, $4 million last year.

Kevin Liu - B. Riley

Scott, which group should that effect?

Scott Greenberg

That will go into the Learning Solutions Group and the EBITDA last year ran at over 20%. So it is a roughly 20% NIFO on that $6 million. So it is a business that as you scale could become highly profitable for GPX.

Kevin Liu - B. Riley

Okay. Thanks for taking the questions and good luck.

Scott Greenberg

Thanks.

Operator

(Operator Instructions). The next question comes from the line of Alex Paris from Barrington Research.

Joe Janssen - Barrington Research

Yeah, this is Joe filling in for Alex. First off, congratulations on the quarter and a good year. Just to go back to Kevin's question within LNG, I hear all the commentary, I heard Doug's remarks in terms of how many facilities are in construction kind of where your expectation and maybe the long term opportunity. I'm just curious and maybe you can give this number, but you gave a sense of a proposal activity that's currently outstanding. I'm just curious how many facilities are under proposal and maybe just give me a sense of historically what the closing rate has been on that side of the business.

Scott Greenberg

Well, I will tell you that typically when the government came to us and we used to do government LNG facilities, which is how we got our start with state and municipal governments, it was really based upon technical ability and price. And so you had a lot of price variation. Now, it seems that once you establish yourselves as a customer and you are able to perform it's more based upon the technical capability than them having to bid to the last dollar so to speak.

So if you look at UPS, for example, we won the original nine stations in our bid. They liked our work and they gave us another four stations. That seems to be the way now that when you get involved with a specific company and you do a good job and you know how to build the stations, you would become their manufacturer of choice so to speak, so.

Joe Janssen - Barrington Research

So it sounds like a closing race, been obviously turning higher, and then any kind of number in terms of the absolute number of stations out there that you are currently bidding on?

Scott Greenberg

I think its still early to talk about it, but I would say, since year-end it's probably in the neighborhood, it is not 13 like the UPS contract, but it's UPS contract but it's probably more like 5, 5 plus.

Joe Janssen - Barrington Research

And then one last question, I know we're late in the call here. Back into financial services, I appreciate the commentary on HSBC in terms of the opportunity and the increased scope and the conversations that are going on. And Scott, you mentioned your prepared remarks others are taking notice within the industry. I'm just curious -- may be take me into the conversations a few years back, it was probably you being more active than pursuing given your sizes, given the brand, given all the recent wins kind of building some clout within the financial services industry, are you seeing more people seeking out you and what your offerings are and making sure that you guys are actually on the RFP proposals?

Scott Greenberg

Yes. I'm actually going to have you know we're fortunate enough to have Chris Sproule here, and Chris is the Senior Vice President of the Company. And we're actually talking right at his domain right now. So let me have Chris answer this question for you.

Chris Sproule

Yes, I think you probably seeing it properly that not only are we proactively chatting with large financial institutions but also they're reaching out to us as well. And then additionally we're co-presenting with a lot of our clients at a variety of conferences where it's nice to hear that GP does great work, but we love when our clients tell the community that we do great work. So we presented at a conference last week with SunTrust around the outsourcing models and the engagements what has been working well, what's the future look like with that team. So yes, the reputation of the industry is strong right now and it is providing a variety of opportunities for us.

Joe Janssen - Barrington Research

And I know these contracts are three, four-year type contracts. Are there any big banks out there in the next year, may be year-and-a-half where potential big RFPs in the near future?

Scott Greenberg

Yes, there are. We certainly can't share those; but we're actively involved with couple right now.

Operator

Okay. There are no further questions at this time. I'll now turn the conference back over to you. Please continue with your presentation or closing remarks.

Scott Greenberg

Thank you very much, moderator. When I went over the conferences I actually missed one because this is in my February schedule and we're going to be there tomorrow. So for those of you that are in New York, we look forward to seeing you at the R.W. Baird Growth Conference; we'll be presenting tomorrow. So hopefully if you could stop by. Again, thank you for participating on the call and we look forward to seeing you at our conferences coming up with any additional questions. So thanks a lot and have a good day.

Operator

Ladies and gentleman that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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