GP Strategies Corp. (GPX) CEO Scott Greenberg on Q2 2016 Results - Earnings Call Transcript

| About: GP Strategies (GPX)

GP Strategies Corp. (NYSE:GPX)

Q2 2016 Earnings Conference Call

July 28, 2016 10:00 AM ET

Executives

Ann Blank – Director of Investor Relations

Scott Greenberg – Chief Executive Officer

Douglas Sharp – President

Sharon Mayer – Chief Financial Officer

Analysts

Alex Paris – Barrington Research

Jeffrey Martin – ROTH Capital Partners

Kevin Liu – B Riley & Company

Patrick Brosnahan – Westpark Capital

Operator

Good morning. My name is Tia and I will be your conference operator today for the GP Strategies' Second Quarter 2016 Earnings Conference Call. All lines will be placed on mute, preventing any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. Thank you.

I will turn the call over to Ann Blank, Director of Investor Relations. Please go ahead.

Ann Blank

Thank you. Good morning and welcome to GP Strategies' second quarter 2016 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 can 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 web site at gpstrategies.com. A replay of this call will also be available on our web site later today.

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

Scott Greenberg

Thanks, Ann. Good morning and welcome to our second quarter 2016 conference call. Today, we will follow our usual quarterly format. To initiate the call, I'll provide a brief overview of the results of the second quarter of 2016, then Sharon will present an in-depth financial analysis, and Doug will then give us key updates on our global initiatives. After Doug's presentation, I'll provide a final summary and then we will conclude with a Q&A session.

This morning, before the market opened, GP Strategies announced its earnings for the second quarter of 2016. The second quarter of 2016 did show improved operating results compared to last year, despite the continued softness in the Professional & Technical Services segment.

Increased gross profit in the Learning Solutions segment, combined with both revenue and gross profit increases in the Sandy Trading & Marketing segment were the highlight of the quarter.

In addition, we are now finally seeing more opportunities being generated from our global initiatives. We have also resumed our acquisition strategy and are currently evaluating several opportunities. We do expect to have at least one acquisition completed in the near future.

To begin our discussion, I am pleased to report that GP Strategies was notified of a $35.9 million five-year award from a foreign petroleum company. This award should help improve the revenue trends that we have been experiencing in our Professional & Technical Service group. So we're starting off this call with something big.

In addition to this, we are beginning to see opportunities, including one from a global pharmaceutical company. This is a direct result of our global initiatives. Doug will talk later about recent wins and additional opportunities.

In the second quarter, the company achieved revenue of $125.5 million, which was relatively flat compared to the second quarter of 2015, despite the head wins on reduction of approximately $4 million from the Professional & Technical Service and a decrease of approximately $1.9 million, due to the unfavorable change in foreign currency.

Excluding the Professional & Technical Service revenue, revenue grew by 4% without adjusting for currency and approximately 6% with adjusting for currency, so not terrible.

In 2015, the company announced an additional share buyback program of $15 million, and we purchased approximately 159,000 shares of GP Strategies stock in the open market during the second quarter and had approximately $6.1 million remaining under the program at June 30, 2016.

The continued buyback has resulted in approximately 3% last year's currently outstanding on a fully diluted basis compared to the second quarter of 2015. EBITDA for the quarter was approximately $10 million, adding back severance expense was approximately $10.5 million compared to $9.7 million for the second quarter of 2015.

EBITDA per share for the quarter using this $10.5 million was approximately $0.63 for 2016 compared to $0.56 for the second quarter. So EBITDA per share is up approximately 12% from the same quarter of last year, again a very good sign. Some companies however analysts as well, add back non-cash compensation to EBITDA on a pro forma basis, we do not, but for disclosure sake these expenses for the quarter was approximately $1.4 million.

In 2013 through 2015, we invested heavily in building our global reach and anticipating similar trends of investments in year to come including the two announcements we made today. We added approximately 13 global offices to the company and our revenue in the Asia Pacific region is now excess of $20 million annually, which is a multiple of where it was just five years ago. We are currently doing business with approximately 25% of the global 500 customers worldwide and our goal is to continue to establish GP Strategies brand and core sell to these customers in the highly fragmented training industry. We routinely get asked about the market of the massive business that we participate in which is now estimated to be over $100 billion globally, and our largest competitor still is actually to come is in-house training departments. We understand that we are playing in a highly fragmented industry and we look forward to continued execution.

On previous calls, we discussed initiatives to expand into the financial and insurance service sector. We've started this initiative performing in the sector approximately five years ago and for the second quarter our revenue for this sector was approximately 20% of our total revenue. As we announced last quarter, we are pleased to announce that the company's largest client has given us a two-year extension at the beginning of 2016.

With that being said, Sharon will now give a detailed financial presentation for the quarter.

Sharon Mayer

Thanks, Scott. Good morning, everyone. We recorded second quarter revenue of $125.5 million, which was down slightly from the $125.7 million in the second quarter of 2015. During the quarter, we experienced growth as Scott mentioned in our Sandy and Learning Solutions segment.

Sandy second quarter revenue of $27.4 million represented a $2.2 million or 9% increase over the second quarter of 2015. There was a $2.9 million increase in training services for automotive clients compared to the second quarter of 2015, which included $1.7 million of revenue from new and expanded client relationships. This increase was partially offset by a $700,000 decline in publication revenue due to a decline in volumes.

We are projecting a total of $500,000 publication revenue in this third quarter, which compares to $8.1 million in the second quarter of 2016, and $6.9 million in the comparative third quarter of 2015.

Revenue in the Learning Solutions segment increased $2 million or 4% over the second quarter of 2015. The job skills acquisition completed on March 1, contributed $1.5 million of revenue in the quarter. There was also a $1.8 million net increase in e-learning content development and training outsourcing services. These increases were partially offset by $1.3 million decrease in revenue due to a decline in exchange rates, compared to the second quarter of 2015. The revenue increases in Sandy and Learning Solutions were offset by revenue decreases in other segments.

Professional & Technical Services revenue decreased $4 million or 13% compared to the second quarter of 2015. These decreases were due to a $2.2 million decline in revenue from oil and gas clients, a $800,000 net decrease in revenue for energy clients, a $600,000 net decrease in engineering and technical services and a $400,000 decrease in revenue due to a decline in exchange rates.

The Performance Readiness Solutions revenue decreased slightly by $200,000 or 1% over the second quarter of 2015. Revenues within the segment increased by $1 million due to a new technical training contract with an aerospace customer, however this increase was offset by a $700,000 decline in platform adoption and training services, and a $500,000 decline in performance consulting services.

The automotive sector comprised 22% of our revenue year-to-date compared to 18% year-to-date June 2015, and the financial and insurance sector comprised 21% at year-to-date revenue, compared to 22% year-to-date June 2015. We continued to have our revenue concentration with a financial services customer, which accounted for 15% of our year-to-date revenue and an automotive customer, which accounted for 14% of our year-to-date 2016 revenue.

Revenue earned from operations outside the United States represented 29% of year-to-date revenue in both 2015 and 2016. Gross profit increased in the second quarter by $300,000 or 1%.

Gross profit as a percentage of revenue, increased slightly to 16.2% compared to 16% in the second quarter of 2015. Included in gross profit is $500,000 of severance expense related to additional cost reduction.

Excluding severance expense, gross profit increased $800,000 or 4% to 16.6% of revenue. The $300,000 increase in gross profit was largely due to $1.2 million increase in gross profit in the Learning Solutions segment, with $300,000 provided by the job skills acquisition. And a $400,000 increase in gross profit in both the Sandy and Performance Readiness Solutions segment. These increases were offset by a $1.7 million decrease in gross profit in the Professional & Technical Services segment, primarily due to the revenue decreases discussed in this segment.

With the exception of the Professional & Technical Services segment, all other segments experienced a gross margin percent increase compared to the second quarter of 2015. And despite Performance Readiness Solutions revenue being down slightly, gross margin increased due to reduction in overhead cost.

SG&A increased $300,000 to $12.3 million. SG&A cost including a net $300,000 increase in labor and benefits expense and a $200,000 increase in expense, primarily related to an internal sales conference held in May. This increases were partially offset by a $200,000 decline in the amortization expense.

During the quarter, we recognized a $100,000 gain related to a change in the estimated earn-out payments and associated fair value of contingent consideration compared to a loss recorded in the second quarter of 2015. Interest expenses increased slightly by approximately $100,000, primarily due to an increase in short-term borrowings. Other income of $200,000 was a $500,000 increase compared to the $300,000 loss recorded in the second quarter of 2015.

In the second quarter of 2016, we recorded a $100,000 foreign currency gains compared to a $500,000 loss in the second quarter of 2015. Second quarter 2016 income before taxes was $8 million compared to $7.4 million in the second quarter of 2015, which resulted in a $600,000 or 8% increase.

Tax expense was $3.1 million in the quarter or a rate of 38.3% compared to $2.7 million or 36.2% in the second quarter of 2015. In the first quarter, we were projecting a 2016 tax rate of 36.7%. We are now projecting a revised 2016 tax rate of 37.4% that we had to true up in the second quarter resulting any higher second quarter rate.

Second quarter net income was $4.9 million or a $200,000 improvement over the second quarter of 2015. Earnings per share was $0.29 compared to $0.27 or a $0.02 improvement. The $500,000 of severance expense recorded had a $0.02 impact on earnings per share in the quarter.

Moving on to some balance sheet highlights, our cash balances were $14.9 million at June 30, 2016, compared to the $21 million on hand at the end of 2015. During the year, we spent $7.9 million on share repurchases. We also spent $2.7 million to fund the job skills acquisition completed on March 1 and $2.6 million in the second quarter on earn-out payments for a previously completed acquisition.

We generated $10 million of cash flow from operations year-to-date 2016, compared to $3.1 million year-to-date June 2016. The $10 million is comprised of year-to-date income of $8.7 million, plus non-cash add-back to net income including depreciation and amortization of $3.5 million, non-cash compensation expense of $2.9 million, which was partially offset by a $5.1 million decrease in cash from changes in other operating items.

Fixed asset additions were $900,000 compared to $1.4 million year-to-date 2015, and we generated free cash flow for the six months of $9.6 million. At the end of June, backlog was $251 million compared to June 2015 backlog of $246 million. June 2015 backlog included an additional $15 million of UK job skills funding. We anticipate receipt of additional job skills funding within the next week, which we anticipate will exceed this $15 million in year-over-year difference. Approximately 95% of the backlog will be recognized as revenue within the next 12 months.

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

Douglas Sharp

Thank you, Sharon and hello, everyone. I have few highlights to sharing you this morning, actually six and these are in addition to the opportunity mentioned by Scott, with a large pharmaceutical company. As you might remember, last year, we expanded our learning services to include human capital technology for the most part centered around the talent and human capital modules of SAP's SuccessFactors product. This service line is doing quite well for us and in Q2, we won two projects, one with UCB Pharma out of Brussels and the other with Hikma out of Oman. Moving on, I mentioned the next highlight on our last call, but I'm at liberty now to talk a little bit more about that highlight.

In Q2, we ramped up and on-boarded staff in support of our new awards with Lockheed Martin Aerospace. Lockheed is moving into full scale production of the F-35 Joint Strike Fighter, ensuring a competitive bid and included the incumbent suppliers in selected GP Strategies for their training and development and their administration of learning needs.

Moving on Sharon mentioned our growth in the automotive sector. This growth stems partly from two new awards led by our U.S. West Coast Sandy Group. One is for the retail training with TIA, a multi-year contract and the other is with Hyundai to provide training to support the launch of their new Genesis brand. My last highlight in our recent – my last highlight is our recent award notice we received from Kuwait National Petroleum Company, also as mentioned by Scott earlier.

About 15 months ago, before we felt the impact of the change in the oil market, we've developed what we call a pivot strategy, which was simply to take our America's base strength in training and documentation for downstream facilities and finally global place where CapEx projects remain in the works. That pivot strategy brought us to Kuwait.

Kuwait Petroleum Company's specific mission is three-fold. One, to integrate downstream maximizing the value of Kuwait hydrocarbons. Two, to deliver high quality and clean products. And three, maintaining superior people and partners. And I think this turned out to be a great fit for us. And 15 months later we received the award notice north of $35 million. And I might add that there are number of other CapEx projects in Kuwait that are early on our radar screen.

Scott, with that, I'll turn it back to you.

Scott Greenberg

Thanks, Doug. I'd like to expand upon a few points and then we'll get into the Q&A session. First off, when Sharon talks about backlog, as she mentioned the skills funding contract which is expected to be signed tomorrow is not included in backlog. If it was, we'd be able to demonstrate a backlog increase of over 10% compared to the same period last year. So a substantial increase in backlog in the quarter, and we are happy with the incremental revenue we're getting from the skills funding, our agency because they are showing an increase.

The second area that I would like to talk about is the automotive industry. As Doug mentioned, new awards on our Asia Pacific practice, the one thing that occurred at Sandy is they have the ability to lock-in most of their major contracts for a three year to five year period, and they avoid giving them the bandwidth to look for additional work and they are being very successful in that regards, as you can see in their results of operations. So Sandy is very, very strong right now.

Thirdly, I mentioned the award in the pharmaceutical space. GP, based upon its global initiative, I mean platform is starting to see opportunities in the pharmaceutical and financial area – pharmaceutical area because they need to train on a global basis. If you look at pharmaceuticals, it has the same type of attributes as the financial service industry. It's based upon compliance, it's a highly regulated industry and the companies have significant budgets to spend in training. It's estimated that the two industries that have the highest budgets as opposed to the revenue is financial services and pharmaceutical. So based upon that, we are putting a major effort in the pharmaceutical, and hopefully as we talk and go down the road, we can develop a similar success profile that we've been able to do in the financial service sector in the last period of time.

Currently on the acquisition side, the acquisitions that we're looking on is similar to what we've done in the past. We're not looking at anything huge that will put the company in risk. They are similar to niche acquisitions, which will help us to grow our business model and help us to grow our platform, and again, we have a strong pipeline in that regards.

To conclude, before we go to the Q&A. We will be at the BMO Back-to-School Investor Conference. So, we hope to see you there, and addition, we are currently talking that before the end of the year, have an Investor Day or Investor Conference, that we've had success with doing in the past, where our investors and our management team could get together and we could discuss the company over one day basis. So, look forward to hearing more on that.

And concluding, before I go to Q&A, based upon what you hear today, a lot of awards or potential awards based upon our global path platform and increase in profitability in all groups, other than Professional & Technical Services got a major award in that area, we are really starting to be believing that we're seeing some light at the end of the tunnel.

And with that being said, I'll hand it over to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Alex Paris with Barrington Research. Please proceed.

Alex Paris

Hi, everyone.

Scott Greenberg

Hi, Alex.

Alex Paris

Just couple of questions. So, the quarter was impacted by $1.9 million in FX, we all assume there would be some FX impact. How does that boil down to earnings per share, is that a penny, is that $0.02?

Sharon Mayer

About – the FX impact in the second quarter was about $300,000 of free tax dollars, so without doing the math, I'm sure it's probably somewhere around $0.01 per share.

Alex Paris

Okay. And then, you talked about severance being – was that $500,000 or was that $700,000, I'm not sure I got that...

Sharon Mayer

$500,000.

Alex Paris

$500,000 and that's $0.02?

Sharon Mayer

Correct.

Scott Greenberg

That's correct.

Alex Paris

And this is part of the cost cutting initiatives that you announced late last year.

Sharon Mayer

Well, that was a year ago, we announced on the first quarter call that there was certain areas we were going to fine tune the cost cutting and this is basically the fine tuning of that cost cutting. So, it's the tail end of it and we'll have the fine tuning then really in ongoing type of thing.

Alex Paris

So we shouldn't expect severance at that magnitude over the next few quarters, it's kind of a high index now?

Sharon Mayer

No, originally we discussed at the end of last quarter as well, the potential of having to do cost cutting – cost cuttings in the two Professional & Technical Service group. So we did started select cost cuttings, but based upon this major win, which should really start impacting Q4, that would have eliminated additional cost cuttings that we might have had planned.

Alex Paris

Got you. So between that, moving on to my next point then, between that big contract with Kuwait, which you said is going to start to impact in Q4 and Omnitrans, which I think, you landed in June, right?

Sharon Mayer

Yeah.

Alex Paris

That's going to start impacting I would assume in Q3, correct?

Sharon Mayer

Well, we did have some revenue in Q3 of Omnitrans. So, really the big, the bigger increase will be the initiation of this new petroleum contract.

Scott Greenberg

And we will see some additional increase revenue from Omnitrans in Q3. But Scott's right. There already is some revenue related to the start-up in Q2.

Alex Paris

Okay. But overall, it was what an $8 million contract?

Sharon Mayer

Yeah.

Alex Paris

So we'll get an additional $8 million in revenue a little bit in Q2, and then the rest in Q3 and Q4?

Sharon Mayer

Well, we added some in Q2 they'll be slightly normal in Q3. I think the bigger upside trends will be the petroleum contract, but there will be slight – there will be some increases from the Omni Tran.

Alex Paris

Okay. Because as your opening comments, if you exclude Professional & Technical, the business grew 4% even including the impact of FX, which is a nice performance compared to recent quarters or pretty much every quarter throughout the – over the last several quarters.

Sharon Mayer

Well, if you look at it, Alex, the – here we are saying our EBITDA went up by $800,000 and that's where about a $1.05 plus less profit from Professional & Technical Services, which basically means that the rest of the business contributing to the G&A, improved by over $2 million in Q2 of this year, compared to Q2 of last year and that's inclusive of the changes in currency. So that's one of the reasons to obviously be optimistic in that three of the four groups appeared to be on the right track, and the fourth group, we've just won a major award which can stop putting them back on the right track.

Alex Paris

Exactly that was my point that was what I was trying to get at. So the odd man out is on demand as it looks, comps are easier, because that LNG contract with – a big LNG contract is finally anniversaried and you're bringing in new business to replace it and then new incremental business in oil and gas internationally?

Sharon Mayer

That's correct. And again, in addition to just the Professional & Technical Services, you could hear on the -- just of the conversations today on these awards that I've mentioned. Other than the words to Sandy, they pretty much were all driven by our international footprint. So I think you starting to see that the investments we made in people and personnel last year, people like – we run our Asia operations like [indiscernible] people that we hired in Europe, and the additional money that we spent to offset some of the cost reductions, I think you're starting to see that does have a lot of potential, and I believe that this is the first quarter you're actually starting to see that.

Alex Paris

Got you. Just a couple of others, M&A you said the acquisitions that you're looking at are similar nothing huge, small, niche, does that include job skills those among the pipeline there?

Scott Greenberg

Well, right now we...

Alex Paris

....in the UK?

Scott Greenberg

Yeah. We did do a Skills Funding acquisition at the beginning of the year, but once we're currently looking at or not, but Skills Funding is on the top of our radar screen, due to the things we have in place. The Skills Funding work that we do the initial contract that will add is double-digit increase in revenue from where it was last year based upon organic, which is the first time that that's happened in a while because they have been keeping it relatively flat.

So we are starting to see increase organic awards in the skill's funding. There has been a change in the UK obviously when the government and we continue to hope that they go on the current pay up, the first award for 2016, 2017 was a good one, so we're hoping that continues.

Alex Paris

To that point, you said backlog would have been $15 million higher presuming this jobs skills contract gets signed tomorrow, if you would have been reporting backlog tomorrow, so instead of 251 it would have been 266, is that correct?

Sharon Mayer

It’s actually higher than that because there's an increase in the contract, but it's slightly for a different period. But the contract as this would be well over $20 million of increase.

Scott Greenberg

So, as trying to be conservative because the time line is slightly different.

Alex Paris

Gotcha. And then I guess last Sharon why the increased assumption for the tax rate?

We actually are because we fell little bit short of where we expected to be this quarter. We actually have a – we've reduced our total estimated income for the year, and in addition, we have a slight increase in foreign losses in some of our foreign subsidiaries that we actually have to put out some tax reserves for. So, those are the two main drivers. We also had a little bit of a mix in, where we expect our foreign income to come from, and that resulted in a slightly higher net tax rate for our foreign jurisdictions as well. So, it's really a combination of those three things.

Alex Paris

Okay. That's helpful. Thank you very much.

Scott Greenberg

Thank you, Alex.

Operator

The next question is from the line of Jeff Martin with ROTH Capital Partners. Please proceed.

Jeffrey Martin

Thank you. Good morning, everyone.

Scott Greenberg

Good morning, Jeff.

Jeffrey Martin

Scott, could you go into a little bit of detail on the Kuwait National contract. Is that $35.9 million over a couple of years, is it a certain timeframe, and how do you expect that ramp to look like from a revenue perspective?

Scott Greenberg

Yeah. I would expect that it ramps up in Q3. There was very little revenue recognized in – obviously in Q2 is just a little. In Q3, we estimate it'll be about $0.5 million higher than Q2. And then by Q4, it'll probably ramp-up closer to the full amount, another $0.5 million, let's say or may be $1 million. So then it gets to a $2 million run rate, which should go for quarterly basis at least through the next few years. It could get a little higher, because there is some drop off in year five, but I think that's a good formula to look at, that you know $0.5 million higher this quarter, a $1 million higher in Q4, and then running out a $2 million run-rate per quarter through 2017.

Jeffrey Martin

Okay. So, $8 million annually, that's helpful.

Scott Greenberg

Yeah. And again that makes up, that alone has the downturn in the professional and technical services group.

Jeffrey Martin

Okay. And then the pharmaceutical, global pharmaceutical client or perspective client is that a sign contract and awarded contract, its someway in between...

Scott Greenberg

While it was signed, we would have announced it, and we would have been more specific. Right now, we're getting indication that we were selected, so it's not like it's just the bid. We've been announced that we were selected and we are currently growing on the contract negotiations with them. Then, we have to get approval from their Board of Directors as well, which they expect to get. The reason we're bringing it up, is this one does have the potential to be able to ramp up and be a larger contract.

Jeffrey Martin

Larger being, ultimately in [indiscernible] client, or you have some other perspective on?

Scott Greenberg

Well, it's too early to say that, but I would say it does have the neighborhood to potentially be high seven figures or even eight figures.

Jeffrey Martin

Okay.

Scott Greenberg

It could be all the $10 million a year, which again really is, really is now a win based upon our global initiatives which really could be a success story demonstrating our global reach.

Jeffrey Martin

And it sounds like it's an area you're going to be spending more and more time focusing on. Could you give us some perspective on what you may have done historically with the pharmaceutical and/or healthcare industry and strategy as going forward?

Scott Greenberg

Well, when we look at it, we do have other customers in the pharmaceutical space, we've done leadership training, we've done other type of technical training. I actually put together a schedule that say probably in the last year, we've done work with five other pharmaceutical companies on that lease. We do have another bid in those pharmaceutical company that we are actually roughly presenting today. So we are starting to see some wins as normal part of our wins, but increased activity. Based up on that again, with our cost cutting initiatives that we have in place, we also decide to spend money, to try to grow our business and we are adding people into the pharmaceutical arena to try to duplicate what we've been able doing financial services. And – but I think if we – if this what does close, and we do got the contract, we'll have a strong base customer in this arena.

Jeffrey Martin

Okay. Great. And then could you give us an idea on we are largest financial services client, if you expect growth from that client this year versus last year?

Scott Greenberg

Well, I could say there is two elements of it. There is some programs that are ending because of the constant mix, but right now, the bids that we had some of the bids we have in are in excess of the current programs that are ending. So we do have potential to grow the business, if we continue to win awards in new areas. That being said, the majority of the revenue is pretty consistent and constant. It really maybe the last $10 million of revenue, which was probably current programs, but we do have to bid then for new programs that are in excess of $10 million of the current programs.

Jeffrey Martin

Okay. Is there anything we should be looking out for in looking at third quarter and fourth quarter revenue estimates that we should consider that's tied to that estimate?

Scott Greenberg

The only thing that will be tied to the customer that you should consider with that customer until we report on some of the newest stuff, is the change in the currency. Because the financial service industry, the work has been done, a lot of the work has been out of the U.K. So, a lot of the work is in pounds, but other than any type of currency change, you wouldn't expect a business change.

Sharon Mayer

Yeah. And most also in terms of back to customer and our U.K. work, just most of that does reside in the Learning Solution segment. So, if you're looking at projecting revenue from that segment that is where the majority of the decline in currency would be. So, we would expect when you're looking at comparing Q3 of this year to Q3 of last year, we would expect a foreign currency decline of somewhere around $4 million year-over-year and about $700,000 of gross margin, where in Q2, we've already experienced a year-over-year decline, just from the change in the rate. But the additional pressure and decline in the pound to dollar conversion bumps that up from with normally than the $2 million difference to a $4 million difference, when you look at a Q3 to Q3 comparison.

Jeffrey Martin

So, sequentially, it's about a $2 million change?

Scott Greenberg

Yes. The other thing to know, it is not so much relating to the financial services, but last year we actually had a difference in our publication work that we are doing for our automotive customer and I had already highlighted the fact that, Sandy where we are projecting $500,000 of publication revenue in the third quarter compared to the $6.9 million that we had last year and $8 million this year. So that difference you'll see a quarter-over-quarter sequential decline in Sandy's revenue as a result of the way the quarter – the way the publications are following in the quarters for 2016, so I just want to make sure that that's clear as well.

Jeffrey Martin

Yeah, yeah. Okay.

Scott Greenberg

But outside of that, because of the awards that Doug had has mentioned, because a lot of them have already started, we do expect to Sandy to have very strong growth, excluding the publications in Q3.

Sharon Mayer

Yeah. I think we think we'll probably be able to make up about half of that publication decline and revenue growth related to the opportunities that Doug mentioned.

Scott Greenberg

So, if you look at that as a number, that's pretty significant in relationship with Sandy. So when you look at Sandy today, so you probably have more revenue in total already booked for this year than they did all of last year. So they are in a unique space and what's happening there is a lot of the brands are developing the [indiscernible] as Doug mentioned and that's providing additional opportunity and additional brands for us to do and is a very exciting time for us right now.

And then lastly, it's not in the Sandy group, but they've helped us, because our global work is in a learning solutions, but they have helped us with automotive outside of the U.S. and we're pleased to report that we won a new expanded contract with Persia and China, where we're now doing an excess of $1.5 a year with Persia and China, which is one of the reasons why our Asia-Pac revenue growing so nicely. And in addition to that, we want a $0.5 job with Mercedes-Benz in China. So, we have in the last period of time successfully evicted the trading market in China with all our brands and we'll continue on that path as well.

Jeffrey Martin

Well, publication revenue has a very thin gross margin. So, if you're backfilling half of that with a lot of higher in margin revenue, that's even more beneficial to the segment profitability?

Scott Greenberg

Yeah. That's correct.

Jeffrey Martin

Okay. Excellent. Thanks for taking my questions.

Scott Greenberg

Thank you, Jeff.

Operator

The next question is from the line of Kevin Liu from B. Riley & Company. Please proceed.

Kevin Liu

Hey. Good morning.

Scott Greenberg

Good morning, Kevin. How are you?

Kevin Liu

Doing well, how about you guys?

Douglas Sharp

Good.

Kevin Liu

Just on the great opportunity, you talk, you alluded to some other opportunities in other capital projects that are going on there as well. With those could be kind of add-ons to your existing contract if you were to win those or are these additional opportunities that could also be fairly significant in there, I'm right?

Scott Greenberg

I would say the latter. But I did caution that there are – our captured teams are pretty far out, and they are pretty far out on the radar screen right now. But the – we're new to the area. They like us, we're fitting in well with this particular project, there is a number of CapEx projects going on in great. We've gone through them, several of them were definitely fit well with the – quite their needs which fit well with our supply if you will in terms of if you want. So, we haven't -- we're in the conversation stages, but there would be new contracts.

Douglas Sharp

So Kevin, the work that talked about today is based up on our current work. It does not include stuff that haven't been awarded. It's awarded today, they're not additional bids that we could potentially have out there.

Kevin Liu

Got it. And then going back to the Sandy segment, on the publication revenue piece, is it more so just the timing thing where you would make up the fair amount of those revenues in the fourth quarter, or has there been some change just kind of in terms of the work required by your customer?

Scott Greenberg

No, last year, we won the publication work in the first quarter, so they do three pubs a year, so they decided to do it in Q2, Q3 and Q4 last year. This year, we had it in for the full year and they decided to do it in Q1, Q2, and Q4. So it is basically the same path, it's just the way that – since we won the contract last year, the way they did it on the quarterly basis were slightly different.

Kevin Liu

Got it. Makes sense. And then lastly, just for the severance, I'm assuming all of that affected the PTS segment within the quarter and on the others?

Scott Greenberg

No actually, Kevin, $300 of it was in Learning Solutions, $100 of it was Professional & Technical Services and $100 of it was Performance Readiness Solutions.

Kevin Liu

And then going forward, we're just not expecting much more until the next few quarters?

Scott Greenberg

Yes.

Sharon Mayer

Well, the only place I think that it's possible is probably Professional & Technical Services, but again, if you look at it, I don't think it will be that material but I think that's where it could be possible.

Kevin Liu

All right. Well, congrats on all the new wins. I look forward to catch up again next quarter.

Scott Greenberg

All right. Thanks, Kevin.

Operator

Next question is from Patrick Brosnahan with Westpark Capital. Please proceed.

Scott Greenberg

Good morning, Scott and Sharon, how are you?

Sharon Mayer

Hi, Pat, how are you doing?

Douglas Sharp

Hi, Pat.

Patrick Brosnahan

Good, good. Hey, I was kind of sitting back, we've been a long-term shareholder for around 10 years or whatever, and I was looking back and your stock price today is approximately where it was back in 2012.

Scott Greenberg

Right.

Patrick Brosnahan

But since that time, you made about four something a share. So I think – what was the disconnect here? How can the stock be roughly the same? And when I take a look at some of your numbers and then I know you've had a lot of cost relative to your expansion as you've tried to grow overseas et cetera. But you know I take a look at the second quarter of 2013 versus 2016 for example and you had revenues of 20 roughly $20 million or 20% more in 2016 than you had in 2013 and yet your EBITDA was down 5%. So, are we at – when are we going to get the economies of scale here? I mean what is it that can drive that $20 million increase in revenues with basically no increase in EBITDA?

Scott Greenberg

Well, Pat, when we won the HSBC and then going back right to the year, when we won the HSBC award and the company plan for the future, their goal was to become a global company and invest in that platform. If you look at the business now from where it was in 2013, the gross profit has actually grown excluding the deviations due to the LNG work we've done, the gross profit has grown. However, that being said, the investment in the total organization to become a global company is now probably requesting in the G&A number about that difference, about $13 million a year. Now, they were at a level we believe the G&A is relatively fix, it will grow by inflation, but we believe that we made most of the necessary investments and now when you see revenue grow, you will get back to the platform that made us so successful from 2009 to 2013.

So, what we say today is that as we grow revenue, you would expect to have the 15% or more hit the pre-tax, and that was a formula that worked from 2006 to 2013, we deviated from that in the last few years to build out our structure, now that our structure is there, if we start winning the work, you'll start getting to that type of formula again.

Sharon Mayer

And I guess...

Patrick Brosnahan

I'm sorry, go ahead.

Sharon Mayer

Yeah. Scott is actually right. But I guess just elaborate a little bit. In 2013, we had about $17 million of LNG revenue from EPS which was – which was high margin work.

Patrick Brosnahan

Right.

Sharon Mayer

And when you take a look at the revenue growth we've had with Sandy, well it's been great, a lot of it has been driven by increased publication revenues which Jeff Martin alluded to that, new publication work is very low margin revenue that we have, but a very strong client relationship and we support and value the work that we do for them. So, I think we do have – we do have that going on if you're just looking at 2013 from where we are today. And Scott and Peter did talk a little about the G&A. But I guess to just touch on that a little bit, in 2013, we probably had, you just thrown out some numbers now that probably about nine total subsidiaries. Today, we have about 26 different subsidiaries that we are trying to support from G&A perspective that we have employees in that we're closing the books for.

So, I think the complexity of the company's structure has changed which has required the support cost to go up a bit and we continue to look at how we can make changes to streamline that sort of [indiscernible] at the economies of scale that you're referring to. But I just also wanted to call out the two big revenue mix changes when we look at 2013 to 2016, definitely different margin profiles for those two projects that we were doing.

Scott Greenberg

So, you know, Pat, to simplify and summarize it. In 2013 we were primarily a domestic company. We realized the market will be global to become a global provider of training. We basically have made the investment to become a global provider of a training company and we've done it internally for the main part because we haven't done a lot of acquisitions in that period of time and we've done it, I could go the other way, we've done without negatively impacting the results becoming a worldwide global company.

And now that we have the platform in place where we're able to provide training all over the world, we would hope that – and the people in place where we added people to become country leads which we talked about on various calls and we have all of that in place. The company is really poised now to what it has in additional wins. We should have a model that grows like it did in the past. And we – it took longer than we originally planned to be totally on as of launch to execute on some of these new awards, but well from a year-to-date it is starting to happen, and hopefully, in a way we'll execute and continue on with additional move like we spoke about today.

Patrick Brosnahan

So, generally, are you saying that, as far as international expansion, et cetera, as far as the additional G&A et cetera, is that pretty much over, I mean, do you – have you – do you have your base now that you're comfortable with it?

Scott Greenberg

Well, we definitely do, you always going to have certain elements of increase based upon inflation or we have a new win that really develops us in a new country, but I would say, the majority of the platform is there and that's really what we've build out in the last three years. And the awards you're hearing about today, we would not have had if we haven't done it, and I think you would have a company now that wouldn't have the opportunities that we have. So, you totally are 100% right on the results, there's no denying that, but we're going to – we're considering it an investment and eventually you have to execute and we think we're in the – the platform is there now that we should be able to execute.

Patrick Brosnahan

Well, congratulations on all those awards. It seems like, obviously, this has worked out the way you thought it would now. I guess this is the time where you just kind of go from here with maybe better margins and less costs, and you start to see the fruition of all the investment that you've made it would seem to me.

Scott Greenberg

Well, like we said, if you look at the results and you can just compare with our last year, here we are saying our EBITDA is up 12% per share and that's inclusive of a $1.7 million dropped in the Professional & Technical Services, which is roughly $0.10 per share. So we have demonstrated this quarter that we are able to bring in the – like a group level of incremental margins that are very good. We just have to fix some of the headwinds that we have. But if you look at the individual groups, three of the four groups have shown significant progress this quarter.

Patrick Brosnahan

Well, hopefully the market will start to see the potential that to you now have based on the investments that you made, and again congratulations on those awards, and thanks for taking my question.

Scott Greenberg

Thank you, Pat.

Operator

There are no further questions. I will turn the call back to you.

Scott Greenberg

Thank you. Thank you, moderator. It was a pleasure speaking to you today. We look forward to seeing you at the investor conferences and of course, we are always available to our shareholders if you have clause or questions. And when we schedule the group meeting, the Investor Day, we'll be sending out a press release on that. So we look forward to seeing you at that as well. So, thanks for participating on the call today.

Operator

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.

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