GP Strategies Corporation (GPX) CEO Scott Greenberg on Q4 2019 Results - Earnings Call Transcript

GP Strategies Corporation (GPX) Q4 2019 Earnings Conference Call March 10, 2020 10:00 AM ET

Company Participants

Ann Blank - Vice President, Investor Relations

Scott Greenberg - Chief Executive Officer

Adam Stedham - President

Mike Dugan - Chief Financial Officer

Conference Call Participants

Chris Howe - Barrington Research

Jeff Martin - ROTH Capital Partners

Zach Cummins - B. Riley FBR

Operator

Good morning. Welcome to GP Strategies Corporation Fourth Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there’ll be an opportunity to ask questions. [Operator Instructions] Please note, that this event is being recorded.

I would now like to turn the conference over to Ann Blank, Vice President of Investor Relations. Please go ahead.

Ann Blank

Thank you. Good morning, everyone and welcome to GP Strategies fourth quarter 2019 earnings calls. On the call today are Scott Greenberg, Chief Executive Officer; Adam Stedham, President; and Mike Dugan, 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 this webcast will be available on our website for 90 days following today’s call. The slides that are being presented today are also available on the quarterly earnings releases page of the investor section of our website.

At this time, I’d like to turn the call over to our CEO, Scott Greenberg.

Scott Greenberg

Thank you, Ann. Good morning and welcome to our fourth quarter 2019 earnings conference call. Today we will continue to use our regular quarterly format, which will include a WebEx Presentation. Hopefully you’ll find this informative and useful in your analysis of GP Strategies.

To initiate the call, I will provide a brief overview of results for the fourth quarter. Then Adam, our President will give key updates on our global initiatives with a focus on organic revenue growth opportunities, and also an update on potential impacts of the coronavirus. After Adam’s presentation, our CFO, Mike Dugan will present the summary financial analysis, then I’ll provide a summary concluding with a Q&A session.

Due to the coronavirus, that company has taken actions protecting our employees, while at the same time servicing our customers. We have implemented policies and predictions to reduce the impact, while maintaining and promoting safety in the workplace.

In the fourth quarter of 2019, the company achieved revenue growth of 17%, of which, 12% was organic growth. This compared to the fourth quarter of 2018. In addition, our adjusted EBITDA increased by 46% for the fourth quarter of 2019, compared to the corresponding period of 2018. The progress that we’ve made in our business development efforts have translated into positive results for the quarter.

We continue to improve our balance sheet and generate approximately $8.8 million of operating cash flow for the quarter. We were able to reduce our net debt position after subtracting cash to $74.7 million at December 31st, 2019, compared to $103.1 million as of December 31st, 2018. The improvement in our balance sheet gives us increased flexibility going forward.

A positive attribute of our company is that over 60% of our revenue is considered recurring on an annual basis. We currently have approximately 125 of the global 500 companies as clients. With that being said, we are making strong positive inroads in both increasing wallet share and winning new customers by leveraging our global footprint.

I’ll now turn the call over to Adam.

Adam Stedham

Thank you, Scott. In 2019, we focused on the implementation of a new sales strategy designed to reignite our Managed Learning Services growth and expand our opportunities in the Automotive industry organic growth of 5.4% for 2019. The combination of our sales strategy and automotive industry focus drove revenue growth during 2019 within TTi and the historical GP Automotive Services that exceeded the company’s overall organic growth rate.

We’re more confident than ever about the long-term growth opportunities for GP Strategies within the global automotive industry. In addition, during Q4, our previously announced Managed Services wins helped drive growth in the quarter. This sales momentum has continued into 2020 with higher than normal RFP activity for Managed Services.

Now before I discuss the details of our strong Q4 and overall 2019, I’d like to address two recent developments in the marketplace and provide some perspective on how these events relate to the business. First, our second largest client that operates in the Financial Services sector recently announced a strategy that shifts their geographic and market focus in an effort to drive cost savings over the next few years.

Based upon our insight and experience with the client, we do not believe there’s any correlation between the shift in strategy and their expected investment in learning and talent management. To [find] [ph] initiatives that involve changing staff allocations geographically, corporate processes or the implementation of new technologies that are associated with automation typically involve additional training requirements.

Now, I’d like to shift to the global business environment, specifically as it pertains to the coronavirus. At this time, although the potential impact of the virus is unquantifiable, we believe it will be temporary and not extend beyond some cancellations of learning activities during the time organizations take actions to limit the spread of the virus. Currently, the most significant impact to GP has been in China.

It’s important to note that in 2019, only 4% of GP Strategies’ revenue was generated in China, including Hong Kong. At this time, we’ve had several cancellations of previously both learning activities in Q1 and the first part of Q2, and it’s hard for us to determine how many will be rescheduled.

But with that said, a meaningful part of our training delivery business is compliance-related with specific compliance deadlines and as a result, they need to be completed prior to the end of the compliance window.

Now as the counterpoint the company’s cancelling face-to-face training activities, the companies are actively reviewing training options with a focus on eLearning and Virtual Instructor-Led Training. We believe with that we are the largest and most capable custom eLearning development provider in the world.

Over the last few years as part of our offshore expansion strategy, we’ve increased our eLearning development capabilities significantly. Given our expertise and leadership position, we’re well positioned to benefit from an increase in demand from companies looking for ways to develop learning strategies that are less susceptible to disruptions due to events like the coronavirus.

Now, a second risk mitigation strategy companies can leverage to minimize business disruptions during times like these is to enter into outsourcing relationships with providers that have business continuity and recovery plans built into their outsourcing models.

With the largest learning-focused outsourcing company and history has shown that when the marketplace embraces training outsourcing, that is very positive for GP Strategies. Our expertise and capabilities position the company to benefit as new opportunities develop. We anticipate that the current events will reinforce and expand the trend of increased outsourcing requests for proposals, which we will receive over time.

We believe the events over the last few months have highlighted the value proposition of GP Strategies and our ability to deliver long-term growth. Looking forward, we expect to deliver stable revenue in the first half of 2020, excluding divestitures and the timing of shipments for automotive publications.

During the second half of 2020, we expect to deliver mid single-digit organic growth as compared to the second half of 2019. Overall, we’ve executed on our growth strategies, driving improved results and we believe that current events are only a temporary disruption.

Now, I’d like to move on and update on the overall sales activities. On our last call, I discussed our multi-million dollar plus contract opportunities with a combined potential to drive $20 million per year in revenue. Since then, we’ve won contracts value that over half of this amount while bidding on additional opportunities.

The net result of the contracts that are still active since the last call, minus those that were won or lost, plus the new contract opportunities is still over $20 million in annualized opportunities that are active in our pipeline. We’re pleased with our success rate of closing deals and adding new deals to the pipeline.

Now, due to our clients’ annual budget cycles we’ve historically had the greatest number of requests for proposals at the end of the third quarter and into the beginning of the fourth quarter. This year despite the current market environment, we’re encouraged by the higher proposal activity we’re experiencing in the first quarter compared to previous years.

Now to summarize the status of our sales efforts in 2019, I’ll quickly share our year end sales metrics. For 2019, GP had $1.2 billion in new sales opportunities, which is a 31% increase from 2018. Our year end sales pipeline was $739 million, which is up 37% compared to 2018. Our new bookings were $361 million which is up 25% over 2018.

As a result, our backlog at the end of 2018 was up 16.7% versus the end of 2018, after excluding the backlog associated with the two divestitures. Based upon our sales strategy success in 2019, we’re expanding the sales initiative in 2020 and we anticipate similar returns on this investment.

Now at this point, I’d like to move on to provide some key updates within our operating segments, and then Mike will cover detail that has delivered year-over-year revenue growth of 14% in Q4, driven primarily by outsourcing contracts.

Traditionally, outsourcing contracts take about a year to fully ramp. During 2019, several Managed Learning Services contract wins from the end of 2018 follow this lifecycle and we’re fully ramped by Q4, driving strong revenue growth.

With the new contract wins in Managed Learning Services, we expect the same cadence for the business throughout 2020 with revenue weighted to the second half of the year. As I mentioned earlier, the only caveat would be any unforeseeable impact from factors that are outside of everyone’s control.

Another contributor to the growth within Managed Learning Services was job skills training, which delivered strong organic revenue growth in Q4 2019, compared to the same period the previous year. We anticipate both the revenue and gross profit in Q1 of 2020 and beyond will exceed the prior year same quarter comparisons.

The second practice within the Workforce Excellence segment is Engineering and Technical Services. The multimillion dollar Aerospace project we’ve previously announced is ramping up nicely and we anticipate this project to contribute significantly during Q2 and Q3 of 2020. The sales efforts of our energy products and services did not meet our expectations in Q4 of 2019.

As a result, we’ve reorganized our sales efforts in this area. Although we’re beginning to see positive trends in the business, we do not expect to see significant contribution within this particular part of the business until the second half of 2020.

Now, if we move on to the Business Transformation segment, revenue for the segment increased 24.5% in Q4 with 9.6% organic growth compared to the same period last year. The growth was driven primarily by the Sales Enablement practice that drives the majority of its revenue from the Automotive industry.

Looking forward, one of the multi-year contracts that we just won since our last earnings call is in the Automotive industry and we expect it to contribute to our organic growth within Business Transformation in Q2 of 2020 and expected to deliver revenue growth in 2020.

Our Organizational Development practice within this segment was basically flat in Q4 2019 versus Q4 2018. On our last call, we announced that we’re shifting the sales strategy for our Human Capital organization within this practice. In 2019, the Human Capital business did not deliver growth over 2018.

Since the shift of our sales strategy though, the Human Capital team has already won two significant new projects that will spend 2020 and 2021, in addition, they’re in late sales stages for another significant project. We’re very encouraged by the increase in opportunities in the space and the ability of our team to win these new sales contracts quickly.

Looking forward to 2020, we’re very pleased with the momentum of our business. The organizational and strategic changes we’ve made over the past few years are showing results. We will continue to monitor the global landscape, but we continue to believe any impact to the business from the coronavirus will be temporary. We are well positioned to benefit from trends in the market that we serve and we believe our ability to deliver long-term growth and drive shareholder value is strong.

Now, I’ll turn the call over to Mike and he’ll provide some detailed financial review.

Mike Dugan

Thanks, Adam and good morning, everyone. Starting with revenue and gross profit on Slide 8. We reported Q4 revenue of $155.4 million, which is up $22.5 million or 17% from the $132.9 million of revenue reported in Q4 of 2018. Organic revenue growth in Q4 and constant currency was 11.9%.

Breaking the revenue out by segments, the Workforce Excellence segment reported Q4 revenue of $86.8 million, which is up $9 million or 11.6% from the revenue reported in Q4 of 2018. Within this segment, the MLS practice contributed a net increase of $8.7 million, primarily due to a $6.9 million net increase for MLS training and content development services due to recently announced outsourcing contract wins and new content development contracts, and a $1.9 million increase in UK Vocational Skills Training Services.

The ETS practice experienced a $0.5 million increase in revenue, primarily due to increases in Chemical Demilitarization Training Services for the US government and Disaster Recovery Services. Organic revenue growth in this segment for Q4 was 13.5%.

Transformation Services segment reported Q4 revenue of $68.6 million which is up $13.5 million or 24.5% from the revenue reported in Q4 of ‘18. Within this segment, the Sales Enablement practice contributed a net increase in revenue of $13.4 million, primarily due to an $8.8 million increase related to the TTi Global and TTi Europe acquisitions which were completed in 2018.

A $3.5 million increase in Automotive Sales Training Services largely due to an increase in new vehicle launch events and Technical Training Services and a $1.1 million increase in publications revenue due to the timing of shipment of the 2019 fall publication occurring in Q4 of 2019 versus a portion of the 2018 fall pub shipped in Q3. The Organizational Development practice revenue in Q4 2019 was consistent with Q4 of 2018. Organic revenue growth in this segment was 9.6%.

Automotive Publication revenue and the Sales Enablement practice in Q4 of ’19 was $10 million, which was $1.1 million more than the pub revenue recorded in Q4 of ‘18. This increase as mentioned before was due to the entire 2019 fall publication being shipped in Q4 of ‘19 versus a portion of it shipped in Q3 of 2018.

For 2020, the publication revenue is forecasted to be approximately $24 million which is materially consistent with the $24.2 million at 2019 pub revenue. However, there is a shift of $5 million of pub revenue out of Q2 of 2020 and into Q3 of 2020 based on the scheduled shipment of one of the 2020 pubs falling in early July, versus in 2019, the same pub shipped in late June. For a breakout of the projected 2020 pub revenue by quarter is as follows: Q1, $5 million; Q2 $3.5 million; Q3, 5.5 million and Q4, $10 million.

In terms of gross profit, we reported Q4 gross profit of $23.3 million, which is up $5 million or 27.4% from the $18.3 million of gross profit reported in Q4 of ‘18. The Workforce Excellence segment reported Q4 gross profit of $14.8 million or 17% of revenue, which is an increase of $3.6 million or 31.9% compared to gross profit of $11.2 million or 14.4% of revenue for Q4 of 2018.

Primary driver of the increase in gross profit in the Workforce Excellence segment are the revenue increases previously noted. And in addition, within the ETS practice in Q4 of 2018, there were contract overruns in our Alternative Fuels division that totaled $8.7 million loss that did not repeat and in fact, were replaced with profitable projects in Q4 of 2019.

The Business Transformation Services segment reported Q4 gross profit of $8.5 million or 12.5% of revenue, which is an increase of $1.4 million or 24.4% compared to gross profit of $7.1 million or 12.9% of revenue for Q4 of 2018. Gross profit increases in this segment were primarily due to the gross profit contributed by the TTi acquisition and the other increases in revenue in the Sales Enablement practice.

Moving on to Slide 9. To touch upon some year-to-date highlights for the company. Year-to-date internet revenue is up $68.1 million or 13.2%. Year-to-date organic revenue is up 5.4% in constant currency.

Looking ahead to 2020, given the potential impact of the coronavirus on our revenue in the early part of 2020 that Adam previously mentioned, and due to the shift of $5 million of publication revenue out of Q2 and into Q3, we expect our 2020 revenue profile to be more heavily weighted to the second half of the year.

Year-to-date gross margins excluding severance for both periods are improving and running at 15.7% year-to-date 2019 versus a comparable 15.2% in 2018. For 2020, the emphasis will be to continue to deliver improvement in gross margins. Included in the year-to-date 2019 results is revenue and gross profit for two businesses that we recently announced being divested.

The tuition business, which was sold effective 10/1/2019, had revenue of $5 million during the first nine months of 2019. The Alternative Fuels division which was sold effective 1/1/2020 had revenue of $11 million in 2019. The gross margins of these two businesses were in line with the gross margins of the Workforce Excellence segment when they resided.

Moving on to SG&A expenses on Slide 10. General and administrative expenses for Q4 are up $3.1 million or 21.1% from the $14.6 million in Q4 of 2018. Primary drivers are a $2.1 million increase in bad debt expense, primarily due to a $2.2 million bad debt write-off upon final settlement of an AR with a foreign oil and gas clients which was in dispute since Q4 of 2017.

There was also $0.5 million increase in G&A including amortization related to the acquired TTi Global business in q4 of 2019. And there was a $0.3 million increase due to internal labor costs that in Q4 of 2018 were capitalized in connection with our financial system implementation, but are included in G&A expense in 2019.

Sales and marketing expense for Q4 is up $0.5 million quarter-over-quarter, primarily due to the investment in business development, personnel, inside sales and the centralization of our account management team, some of who were previously reported in costs of revenue in 2018. As Adam mentioned, based on the success of the sales initiative, we are incrementally expanding our investment in the sales force in 2020 and expect similar returns on this investment.

Moving on to other P&L items on Slide 11, and to touch upon just a few. With the gain on sale of business, while the proceeds from the sale of tuition business were $20 million, the accounting for the transaction included the allocation of goodwill and the book value of certain assets related to the business, which resulted in the pre-tax gain recorded of $12.1 million.

Interest expense in the quarter is down $0.1 million from Q4 of last year, and is down $0.5 million from the year-to-date 2019 quarterly average due to lower borrowings under the credit facility. The income tax rate for 2019 was 32.1% compared to 33.4% in 2018. As we looked at 2020, the projected tax rate is approximately 30%.

Moving on to the earnings summary on Slide 12. After adjusting for special items, including the gain on divestiture the tuition business, we reported adjusted EPS for q4 of $0.23 versus $0.11 cents for Q4 of last year and adjusted EBITDA for Q4 was $11 million, which is a 46% increase over the $7.5 million of adjusted EBITDA reported in Q4 last year. For details on adjusted EPS and adjusted EBITDA, you can refer to the appendices at the end of this presentation.

Moving on to some balance sheet drivers on Slide 13. Our operating cash flow for Q4 was $8.8 million and for the year was $13.4 million. Unbilled revenue was down $23.5 million and accounts receivable was up $24.2 million from December 2018, as the disruption in billings related to the financial system has now finally cleared through the system.

Debt net of cash at the end of Q4 was $74.7 million which is down $28.4 million from the 12/31/18 balance. The company’s leverage ratio as defined under our credit facility as of Q4 2019 was 2.3 times EBITDA compared to 2.9 times at Q4 of 2018 and is down a full turn when compared to the 3.3 leverage ratio at Q3 of 2019.

Before I move on from the financial statement discussion, I want to point out that in our 2019 10-K disclosure, we will be reporting material weaknesses in the area of our internal controls over financial reporting. It is important to note however, that we expect an unmodified opinion on our 2019 financial statements audit. We expect to have all material weaknesses remediated in 2020.

Finally, turning the backlog on page 14. Backlog as of Q4 2019 was $349.8 million which is up $31.8 million or 10% compared to the $318 million of backlog reported for Q4 of 2018. After removing from backlog – from 2018 backlog related to the divested tuition business and LNG Alternative Fuels business, the increase in backlog is approximately $50 million or 17%.

This concludes the financial update. I’ll now turn the call back to Scott.

Scott Greenberg

Thank you, Mike and Adam. We concluded 2019 with success on our three major strategic initiatives. One, organic revenue growth; two, strengthening our balance sheet; three, implementing our new ERP system. We’re looking forward to 2020.

With that, I’ll turn it over to the Q&A session. Thank you very much.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Chris Howe from Barrington Research. Go ahead.

Chris Howe

Good morning, everyone. Congrats on the great quarter.

Mike Dugan

Thank you, Chris.

Chris Howe

First question, perhaps some more color and commentary on your previous comments. Just in regard to the variance that you saw that led to the outperformance within TTi and Automotive over the course of the year or specifically in the fourth quarter, however, you may choose to answer.

Adam Stedham

So basically what you’re looking at is, and you said outperformance and we expected it to perform well, I mean, all along we thought that automotive would perform well, it did perform strongly. What we’re realizing is, there’s a couple of trends. You have our acquisition that happened in the Automotive Services space, we also have other acquisitions that have happened in the space.

So the consolidation within the space has provided an overall macroscopic environment to where all of the players have more opportunities, there’s less competition and we’ve experienced benefits from that. We’ve also experienced benefits from cross selling services that the two organizations have. And our existing clients, we’ve been able to introduce TTi products and services and likewise.

And then thirdly, you have the geographic component. We’ve been able to expand some work in different geographies where we had strength and TTi has been able to expand some work in different geographies that we had strength, vice versa. So those three things have contributed to the overall pleasant growth that we’ve experienced in automotive.

Scott Greenberg

If I could answer that, you know, when we announced the acquisition of TTi, we basically said that when we put the companies together, we have a company that now all 10 of the largest manufacturers are customers of GP Strategies. And in addition, we now have the ability to live with our service all over the world and we’re able to get brand recognition all over the world. And I think that that has occurred with the transaction that we completed last year.

Chris Howe

Okay. That’s great, very helpful. And one follow-up question. You mentioned some comments surrounding the coronavirus. And as we all know, it’s had a large impact on the markets. How should we look at this as it relates to your capital allocation priorities in this next fiscal year in regard to share repurchases or whether it has any influence on how you assess the overall outlook for how you allocate capital this fiscal year?

Scott Greenberg

Well, you know, I did put in our quote, the strengthening of our balance sheet gives us financial flexibility with the ongoing EBITDA. So I don’t think it will have any impact at all on how we allocate capital in 2020.

Chris Howe

Okay, that’s all I have for now. I’ll hop back in the queue. Thank you.

Operator

Our next question is from Jeff Martin from ROTH Capital Partners. Go ahead.

Jeff Martin

Thanks, good morning. I wanted to clarify your commentary around the first half of 2020 versus the second half to stable revenue in first half and by flat are you – and are you anticipate – are you factoring in the divested businesses within that you looking at on a pro forma basis?

Mike Dugan

Yeah. So that you know, as we look at the first half of the year, and the stable on a comparative basis would be after taking out the divested businesses that we noted and I noted what the amounts were for those two businesses. So that would be after taking it out of 2019 on a comparable basis.

You know, in terms of, you know, what does stable mean, we talk about, it’s difficult to quantify the impact of an ongoing situation. We do think it’s a short-term impact, and that our long-term, you know, structure of the business and pipeline and opportunities that we see out there are just as we, you know, said, you know, the strength that we’ve seen out there.

So I can’t give any more clarity. I don’t know, Adam, if you want to provide any more other than, you know, what does stable mean, and you know, relatively stable compared to that prior year first half after those divested businesses are accounted for.

Adam Stedham

No, I think that’s exactly right. So if you look at the simple reality is, we’re looking at our current forecast and we look at the – all of the things that drove us to make the statements on our last call about our competence for 2020, and all those things are still there. But there’s also a lot of unknowns that exist in the current immediate environment.

So it’s difficult for us to predict what that might be – what may occur the first half of the year, because of that. But all of the conditions and all of the wins, everything that existed during our last earnings call, which provide us the optimism that we had at that point in time, still exist. You just have this counterbalance situation that is a little bit unquantifiable right now.

Jeff Martin

Okay. Then I have two other quick questions. On the increased activity in the RFPs, are you seeing that more on the eLearning side or are there – is it just a broader book of business?

Adam Stedham

So it includes eLearning, but it’s a broader book of business. Those – the RFPs I’m referring are the multiyear Managed Services contracts and frequently those – most frequently those are comprehensive relationships that involve multiple modalities of learning. So eLearning, Instructor-Led Learning, Training Administration, several different components put together in a strategic relationship.

Scott Greenberg

But in addition, Jeff, Adam commented that we’re seeing increased activity in the Human Capital side, and that’s one area as well. And then as you go through, you could see increased activity on the Automotive side as well. So I think those are really the combination.

Jeff Martin

Okay. And then a final question with regards to the financial services client and the shift in strategy there. What are you looking for in terms of getting additional clarity? What should we look for and over what timeline to gain greater clarity on whether that’s going to change you know, the degree of business that you do for that client?

Adam Stedham

So I don’t think that – I don’t think you should look for anything. I think that if something shifts, obviously, we will bring it up. As I said, we currently aren’t anticipating anything to do with that. I mean, that particular client views us as a cost saving mechanism. So the fact that they’re undertaking cost saving strategies is not necessarily a bad thing, right.

So as of right now, I don’t think you should look for anything there. We will obviously keep everyone updated. A more of a driving factor in the very short-term for that client as well as all of our other clients is, how are they managing the short-term disruptions potentially due to the coronavirus.

Jeff Martin

Right, right. Okay, thank you.

Operator

Our next question is from Zach Cummins from B. Riley FBR. Go ahead.

Zach Cummins

Yeah. Hi, good morning. Thanks for taking my questions. Adam, you’re mentioning around, you’ve seen some customers delaying projects here in Q1 and then in the start of Q2, especially in China. But you said this also does provide an opportunity for you to see maybe some more eLearning or Virtual Learning opportunities. Have you had clients reach out to you to potentially to schedule that type of learning or how are you expecting that to trend over the coming quarters?

Adam Stedham

Absolutely, we’ve had clients reach out to us. We’ve also actively converted some Live Instructor-Led Training to Virtual Instructor-Led Training that we’re delivering. programs in a Virtual Instructor-Led Training method that those programs have never been delivered that way historically. So that’s happening.

There was just yesterday there was a big – there was a conference call with an industry expert in our space – a non-affiliated industry expert in our space and he had a lot of learning leaders on there. And it was interesting on that call, a couple of these Chief Learning Officers, they were talking about how on one hand, there’s definitely a short-term challenge associated with bringing people together in a face-to-face learning environment.

But on the other hand, they are seeing the conversation about learning and the conversation about how do we equip our workforce with the skills, the ability and the knowledge required to be able to work in an environment like this at the highest level it’s ever been.

So they’re having conversations about training and learning at the highest levels of their organization and the highest levels are requesting it instead of them going to them. So we’re seeing it all over the marketplace. We’re seeing it, everyone else is seeing it. Now it’s just a matter of watching to see how it actually materializes.

Zach Cummins

Got it, that’s helpful. And then you also mentioned expanding your sales initiatives here in 2020. I mean, can you do a little more of a deep dive into what exactly that means in terms of investments in headcount or maybe investments in additional processes?

Adam Stedham

Sure. I – what I can say is within our budget this year, we plan to incrementally increase our client service leaders. Our client service leaders are a key component of the sales strategy. They don’t exist inside of any service line. They exist at a company level, and they’re looking to introduce all geographies, all services and really have a deep intimate relationship with that client.

So we’re increasing the number of those, we’re increasing that number by about 25% in 2020, and so that that’s what we planned on doing. So that will add a few incremental headcount there. So it’s not a tremendous investment by any stretch, but it is some – it is an incremental investment that we feel confident will give us returns.

Zach Cummins

Got it, that’s helpful. And then just a final question for me, it looks like you had some lower margins, especially within kind of the Automotive Services portion. Can you talk about kind of the drivers there and what are the expectations for the margin profile of that business here in 2020?

Scott Greenberg

Yeah, Zach. So a lot of our lowering in the margin profile had to do with the integration of TTi and you know, when believe while it’s taken a little longer than originally anticipated. We believe that we do have potential to increase our margins, which is one of the things that we said earlier. So again, we believe that the acquisition is very successful, and we look forward to increase margin in that group in 2020.

Zach Cummins

Great, that’s helpful. Well, thanks again for taking my questions and best of luck as we go forward in 2020.

Adam Stedham

Thanks, Zach.

Scott Greenberg

Thanks, Zach.

Operator

Our next question is from Chris Howe from Barrington Research. Go ahead.

Chris Howe

Yes, just checking back in. I wanted to seek further clarity if there’s anything more color here on the Human Capital projects that you briefly announced that could contribute significantly to 2020 and 2021. Any idea at this point as to how material they contribute in these forward-looking years?

Adam Stedham

Yeah, great question. When we say contribute significantly, we’re saying contribute significantly at the business unit level, not necessarily contributed significantly as the whole company level. That organization shrank last year compared to the previous year, as we said they did not grow. As of right now we’re looking at that organization with a strong feeling of confidence around their organic growth in 2020.

And the key about our Human Capital – organization, they’re a very large contributor to the overall Organizational Development practice. It’s hard for the Organizational Development practice to experience to achieve organic growth without that major driver within Human Capital growing. So I think the way to look at it is it reinforces our confidence that our Human Capital business unit will be able to have organic growth in 2020 as opposed to what they experienced in 2019.

Scott Greenberg

Yeah, and Chris I mean when we’ve looked at that group, that we’ve actually a group that we would have expect it to grow in 2019 and that was one of our disappointments in the year. But now going into 2020, you know, we expect it to, you know, exceed our overall growth rate for the year compared to other business units.

Chris Howe

That’s great, always appreciated.

Operator

[Operator Instructions] Our next question is from Jeff Martin, ROTH Capital Partners. Go ahead.

Jeff Martin

Thanks again. I wanted to just ask if you could frame the, you know, the business in terms of how much of it is face-to-face interacting at this point? How much is you know, eLearning are online capable? And, you know, also cover, of those clients that are still in conducting face-to-face meetings, what are you hearing from them? What are they saying?

Scott Greenberg

So, the biggest, you know, when you look at our business, you know, the biggest face-to-face we have is the revenue we generate at the automobile dealerships, and that business has not, at this stage had any type of significant impact due to the virus. When you look at other business units, we do have a lot of blended solutions, right. So, we do both face-to-face and eLearning for many customers, including our large financial services.

So it will be hard to give an exact percentage on that except for I will say, in our Sales Enablement business, there is a substantial amount in business within a lot of the others are face-to-face. And then in the Managed Learning Services, there is a significant amount with some of our largest financial service customers. So I think those are the two businesses that probably have most face-to-face, but it’ll be difficult for me right now just to put a percentage on it.

Jeff Martin

Okay. And then a final thing I had was on the UK job skills side. Was the growth there driven more by the strategic changes you’ve made over the last couple of years there or is some of the traditional business coming back there with the change in the government policy?

Scott Greenberg

Well, I would say right now the big generation in business is pivoting in our model and entering into the large companies, and in fact, getting some of the large companies to use that lending money. For those of you who are on the calls before, the government instituted a payroll tax and companies get vouchers and these are the large companies in the small providers have naturally 10%. But our growth has been more on the large companies and the pivot that we did than the smaller companies coming back.

Jeff Martin

Okay, thanks very much.

Operator

[Operator Instructions] At this time, we have no more questions. This concludes the question-and-answer session. I would now like to turn the conference back to Scott Greenberg, CEO for any closing remarks.

Scott Greenberg

Thank you, moderator. I’ll be brief on the closing remarks. Hopefully today you’ve seen the significant progress that we’ve made in 2019. And the long-term positive outlook we have in 2020 going forward, and we look to update you at the end of the first quarter. So thank you very much.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.