GP Strategies Corporation
Q1 2020 Earnings Call Transcript

Published: 12 May 2020

[Operator:]

Good morning, and welcome to GP Strategies First Quarter 2020 Earnings Conference Call. All participants will be in a 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. Ma'am, please go ahead.

[Ann Blank:]

Thank you. Good morning everyone and welcome to GP Strategies first quarter 2020 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, including statements about the anticipated effects of the COVID-19 pandemic and related events on our business and results of operations. Because these forward-looking statements are based on management’s expectations and assumptions and are subject risks and uncertainties, there were important factors that could cause our actual results to be materially different from those expressed or implied by these forward-looking statements.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 first quarter 2020 earnings conference call. Today we will continue to use our regular quarterly format, which will include a WebEx Presentation. That being said, our team is at separate locations today for this presentation. Hopefully, you'll find this information informative and useful in your analysis of GP Strategies.To initiate the call, I'll provide a brief overview of results for the first quarter, focusing on free cash flow and liquidity. Then Adam, our President, will give key updates on our global initiatives and the impact of COVID-19. After Adam's presentation, our CFO, Mike Dugan, will present a summary financial analysis. Then, I will provide a recap followed by a Q&A session.During the first quarter, we addressed the challenge of COVID-19 by supporting our customers, protecting our workforce, generating free cash flow, reducing leverage and lowering expenses. We have implemented policies and procedures to maximize performance, while maintaining and promoting safety in the workplace.The company reduced its debt to approximately $74.8 million at March 31, 2020 from $82.9 million at December 31, 2019, and from approximately $116.6 million at March 31, 2019. In addition, the company had reduced costs in all areas as it deals with the ongoing impact of reduced revenue. With further reductions in the second quarter, we have prioritized maintaining liquidity and supporting our customer base during these trying times.A positive attribute of our company is our occurring revenue stream, resulting in a strong backlog. In addition, we currently have approximately 125 of the global 500 companies as customers. As a leader of custom e-learning content development and virtual training, we believe we are well-positioned for long-term growth in our industry.I will now turn the call over to Adam.

[Adam Stedham:]

Thank you, Scott. When I finish, Mike is going to provide detailed financials for the first quarter. I'd like to provide a better understanding of the company's current situation relative to COVID-19. Because of the global scale and pace of the impacts of COVID-19, we had difficulty forecasting the impact on our business in Q1.We entered 2020 with strong momentum and this position the company to weather the COVID storm. We've strong client relationships, highly capable salesforce and operations team and a fully capable business continuity plan and processes. Looking forward, these strengths combined with our improved balance sheet give me confidence in our business.Now, we expect our revenues to decline in the second quarter compared to the first quarter, but due to significant cost scaling and cost-cutting measures beginning in March of 2020, we expect second quarter 2020 adjusted EBITDA to be consistent with or greater than Q1 of 2020.In addition, unless the existing lockdowns remain in place longer than is expected or there is a return to lockdowns due to the COVID-19 virus, we anticipate the second half of 2020 will outperform the first half of 2020.Now, we've experienced a significant reduction to our face-to-face training deliveries, but other portions of business remains strong and are growing. One key aspect to consider regarding our face-to-face training business is our ability to scale the business up or down. As classes canceled due to a situation like COVID-19 and our revenues drop, we can reduce the labor costs associated with those deliveries. There's some delay between cancellations and labor cost reductions, but we can react in a timely manner. In a very few countries legal requirements have limited our ability to respond quickly, but these countries represent a very small portion of GP's revenues, costs, and profits associated with training delivery.Now, I mentioned that some aspects of our business are experiencing an upturn. Our content development business were approximately 17% of GP's workforce work is up double-digits from 2019. This award winning custom content development organization is one of the largest and most capable in the entire industry. The team is very well-positioned to benefit from any growth trends in the custom e-learning marketplace.GP's U.K. apprenticeship services revenue in Q1, 2020, exceeded the revenue delivered in the same period last year. This year-over-year trend is expected to continue into Q2. Now, we believe that we have significant opportunities within the apprenticeship program due to circumstances related to the COVID virus, especially the increased unemployment in the U.K.Regardless of the current situation, large companies continue to pay the apprenticeship levy and accrue training credits with the government. Going forward, when these companies need to train their staff, they'll be able to preserve cash and avoid income statement expense by utilizing their levy vouchers to pay for apprenticeship related training in lieu of external training spend. Over time, these companies may build back up their headcount in a more cost effective apprenticeship manner.Now, in addition to the corporate levy apprenticeship business, GP's non- levy apprenticeship business has a strong concentration in the care sector. The U.K. government has put new measures in place due to COVID. These measures are intended to drive recruitment in the care industry, and as a result, we expect to benefit from an increase in apprenticeships in this area and the need to up-skill this new workforce by providing mandatory training.Other parts of our business are maintaining their positions. GP's Human Capital team is currently maintaining revenues only slightly below 2019, and most of their work does not require face-to-face contact. As for our outsourcing business, although, clients have cancelled face-to-face training due to COVID-19, the business has not lost a single outsourcing client since the crisis began.We have multiyear contracts with our outsourcing clients that accommodate fluctuations in demand and allow us to scale up and scale down as required. We expect those contracts to remain in place during the COVID-19 situation and may provide opportunities for future growth after the COVID-19 situation. We're actively working with these clients to convert their live instructor-led training that they historically used to other modalities, such as e-learning and virtual instructor-led training.Now during 2019, the automotive sector delivered revenue growth that exceeded GP's overall organic growth rate. This year the automotive industry is facing significant challenges and that's impacting GP Strategies during the second half of Q1 and Q2 for 2020. Going forward, our automotive team is well-positioned to enable our client successful digital transformation -- sorry about that -- as they retooled their retail model.In our Q4 earnings call, we announced the multiyear several million dollar per year outsourcing contract with an automotive client. This outsourcing is specifically targeted at enabling dealerships digital transformations and demonstrates the type of services GP can offer the automotive industry as it rebounds from COVID-19. This outsourcing engagement is on track to begin next month, and we remain confident in the long-term growth opportunities for GP Strategies within the global automotive industry.Overall, Q1, 2020, backlog is up slightly from Q1, 2019. Our sales pipeline at the end of Q1, 2020, is down less than 10% from Q1, 2019. So, obviously, the current COVID situation is impacting GP Strategies as well as our clients.With that said, we're a leading provider of digital transformation and custom e-learning services and our outsourcing clients continue to benefit from our business continuity processes and procedures. Times such as these strengthen the relationship between GP and key clients, as we help them evolve the way they operate their learning. We remain confident in our ability to execute through the current market environment and grow the business over the long-term.Now, I'll turn the call over to Mike, and he'll provide more detailed financial review for the first quarter.

[Mike Dugan:]

Thanks, Adam and good morning everyone. Starting with revenue and gross profit on slide eight. We reported Q1 revenue of $128.3 million, which is down $11.2 million or 8% from the $139.5 million of revenue reported in Q1 of last year.Breaking the revenue drivers out by segment, the Workforce Excellence segment reported Q1 revenue of $74.4 million, which is down $7.1 million or 8.7% from the $81.5 million of revenue reported in Q1 of last year.Within this segment, the MLS practice contributed a net decrease of $1.9 million, primarily due to a $5.6 million decrease related to COVID-19 business disruptions and the $1.4 million decrease related to the tuition business, that was divested October 1 for 2019. Partially offsetting these decreases in the MLS practice was a $2.2 million increase in e-learning and virtual instructor-led training content development services and a $2.9 million increase, primarily due to new outsourcing contracts awarded in 2019 that are now fully ramped up.The ETS practice experienced the net $4.8 million decrease in revenue, primarily due to a $2.3 million decrease related to COVID-19 business disruptions and a $2.5 million decrease related to the LNG business, that was divested on January 1 of 2020. Within this segment, there was a $0.4 million decrease in revenue due to changes in foreign currency exchange rates.The Business Transformation Services segment reported Q1 revenue of $53.9 million, which is down $4.1 million or 7.1% from the $58 million of revenue reported in Q1 of 2019. Within this segment, the Sales Enablement practice contributed to net decrease in revenue of $3 million, primarily due to a $2.7 million decrease related to COVID-19 business disruptions and a $0.3 million decrease primarily in automotive sales training services.The Organizational Development practice contributed a net decrease in revenue of $0.8 million, primarily due to a $0.9 million decrease related to COVID-19 business disruptions and a $1.6 million decrease in other OD services, primarily strategic consulting services. Partially offsetting these decreases within OD was a $1.7 million increase in U.K. apprenticeship training services. Within this segment, there was a $0.2 million decrease in revenue due to changes in foreign currency exchange rates.Publication revenue in the Sales Enablement practice in Q1 of 2020 was $5 million, which is consistent with the $5 million of pub revenue recorded in Q1 of 2019. For 2020, the publication revenue was now forecasted to be down by approximately $8 million in revenue compared to the 2019, as two of the five scheduled publications in a year have been canceled as a result of COVID disruption and replace with digital versions. The projected publication revenue by quarter through the end of the year is as follows

[Scott Greenberg:]

Thank you, Mike. As you heard today, we've had a common theme. And the common theme was the company was very proactive dealing with COVID-19, focusing on a highly variable cost structure. And on the balance sheet liquidity side, not only protecting our liquidity, but improving on it. We believe that this will provide long-term opportunities after the impact of COVID-19 lessons. So, we're very optimistic in the long-term outlook.With that being said, I will turn it over to the Q&A session. Moderator?

[Operator:]

Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions]Our first question today comes from Jeff Martin from ROTH Capital. Please go ahead with your question.

[Jeff Martin:]

Thanks. Good morning, guys.

[Scott Greenberg:]

Good morning, Jeff. Hope, you're staying safe.

[Jeff Martin:]

I hope you and your families are well. Thank you. Same to you. Wanted to get a sense of what is the revenue base of in-person or instructor-led training? And has that reached a stable -- stabilization point and if so, kind of where is that level?

[Scott Greenberg:]

Well, a lot of our revenue that's face-to-face is blended in different areas. So, we have an estimate of that, Jeff. Our estimate of total face-to-face training is approximately 25% to 30% of our overall revenue in 2019. Looking at our results, that is the area that was hit the most of Q1 and it's the area of why we're projecting the downturn in Q2 as well that we discussed.Adam, would you like to add anything to that?

[Adam Stedham:]

No. I think, in particular, our face-to-face business consists of two components. One is face-to-face, you go to customer locations and you work with clients. We're actually seeing some that in various areas coming back, different parts of the world at different paces. And then you have where you're pulling together a group of people to deliver a class with a group of people. That portion of the business, we're not seeing a resurgence yet.But I would point out a lot of that business is tied to compliance related learning. So, we are working with clients right now around identifying other modalities to deliver that learning to their employees, because the compliance deadlines are not shifting, and they have to come up with alternative solutions to train their employees.

[Jeff Martin:]

Okay. And then kind of tied to that was a question in terms of what percentage do you foresee converting to virtual and e-learning out of that 25% to 30% of base that's face-to-face?

[Scott Greenberg:]

Adam?

[Adam Stedham:]

Well, I -- so, I don't think we can determine that right now. I think, the appetite for face -- the final appetite for face-to-face versus virtual instructor-led, everybody's trying to figure that out. We're having a tremendous amount of success right now, with helping clients develop their best practices for virtual instructor-led training. And we're seeing significant ramp-up in the virtual instructor-led training as we see a ramp down in the live instructor-led. But we don't really have a feel for where that ultimately is going to balance out.

[Jeff Martin:]

Okay. And then a lot of companies are giving -- look at April trends, do you have that information and can you discuss what the revenue trajectory has been in April?

[Scott Greenberg:]

Mike?

[Mike Dugan:]

Well, yeah. So, we're not able to provide or not providing specifics on the guidance looking forward. What we've discussed is we do expect a more significant decline in revenue in Q2 and compared to Q1. You heard Scott discussed that about 20 -- somewhere between 25% and 30% of our business is in-person or face-to-face interaction. And I would say that Q2 is -- based on what happened globally is going to be the most significant shutdown period where that had the most significant impact.So, those are the factors that we can discuss at this time, but we don't have specifics on what the April results are or specifically what is our -- or what is this specific projection for Q2.

[Scott Greenberg:]

But to add to that, Jeff, what we did say is that we have a very variable cost based business. And because of that even with reductions of revenue, we're projecting for the whole quarter that the Q2 profit or adjusted EBITDA will be at or above the first quarter levels. So, I think, one of the positive elements of the company is we do have the ability to adjust variable costs in the downturn and then when it starts ramping up, we could ramp-up quickly the other way as well.If you go back -- and this is a while ago -- but if you go back to 2009, the company with the downturn in the automotive and what happened in the world was able to maintain its gross margin percentage on a variable basis and then had a significant ramp-up in the following years. So, that's been the type of model the company has under stressful situations.

[Adam Stedham:]

The other thing I would add since you asked specifically about April -- this is Adam. So, April, we saw wide scale cancellations for face-to-face. We are sitting here the middle of May, so we had seen returns in May of some of those. We've also converted face-to-face instructor-led -- the virtual instructor-led that's now scheduled, that's running in May. Based upon the current schedule, assuming that things continue on the current track, it looks like more will be scheduled in June.So, based upon the insights that we have right now, April is the lowest month. May, we're seeing an improvement from there and everything that we're seeing as of right now indicates June would be an improvement from May. So, May was -- it looks to be the bottom out month for us.

[Jeff Martin:]

Thank you. I'll circle back in the queue.

[Scott Greenberg:]

Okay. Thank you, Jeff.

[Operator:]

[Operator Instructions]Our next question is from Zach Cummins from B. Riley FBR. Please go ahead with your question.

[Zach Cummins:]

Hi. Good morning, everyone. Thanks for taking my question. I guess, just building on this, it seems like Jeff has a lot of the same questions. But in terms of the areas in the face-to-face business that were most impacted by COVID-19, I mean, can you take a little bit of a deeper dive in terms of what sectors were most impacted here? And then how many of these engagements have been canceled versus maybe something just being pushed to a later date?

[Adam Stedham:]

Scott, I can answer that.

[Scott Greenberg:]

Okay.

[Adam Stedham:]

So, thanks for the questions, Zach. As we said -- as I tried to allude to earlier automotive is a very strong industry for us. And outside of travel and leisure, there are few industries that have been hit harder than automotive during this. So, by far, automotive has been the hardest hit for us.If you look at our government business, it's intact. If you look at our, defense and aerospace business actually doing well, we're happy with that. There's some impact on financial services, some impact on lifesciences. But really automotive is, is where we're seeing that the most significant impact to our business.And with that said, we're actively working with them. The great thing about our business on the automotive side is that's probably where we have the longest deepest relationships. So, as they recover from this, we're positioned to recover with them. And as Scott mentioned earlier, I would remind everyone of GP's automotive concentrations hearing 2008/2009, some of the largest automotive companies in the world filed bankruptcy. And GP continued through that and our automotive business grew significantly after that. But that's definitely where we're taking the biggest hit.

[Mike Dugan:]

If I could just add to that, Zach, was part of your question. When you look at the revenue stream we've developed, a lot of it is sales training. In the financial services, we do initiatives, we do regulatory and government compliance. So, that's why I believe that when you're looking at all backlog, our backlog has been pushed back, right? So, the services that we developed, our long-term services that they'll continue to need, they're just being delayed currently. And that's -- and again, that's why I believe our backlog was so strong at the end of Q1, despite the revenue decline.

[Zach Cummins:]

Got it. Got it. That's helpful. And Adam, I know you mentioned you're actively trying to transition some of these face-to-face training engagements to more of a virtual format. I was just curious of the client's willingness to do this versus just waiting a later day to reschedule that training. I know you mentioned there was some compliance deadlines that need to be met.

[Adam Stedham:]

Zach, that's a great question. And actually, it's interesting, when I talk about some of the things that we think are positive trends for us. So, we've actually been a very significant proponent of virtual instructor-led training for a number of years. And typically, the biggest impediment to that type of modality is not the technology itself. It's the appetite of the customer and the willingness for change. A situation like COVID-19 obviously has significantly increased everyone's appetite for change and willingness to try new things. So, we're actually seeing quite a bit of adoption.And the conversion of live -- from live instructor-led training to virtual instructor-led training is not a negative for GP Strategies and our business outlook. Because once again, whether we're flying somewhere to teach a class or we're teaching it virtually, it is effectively the same revenue for us. And actually, we're able to have better instructor utilization if we're not wasting time flying people around to teach classes if we can do it virtually or eliminate the travel time.So, I would say that historically, there's been reluctance to change and we're very optimistic and upbeat around the adoption of that change and where -- we don't know where it's going to go, but it could potentially be very positive for us.

[Zach Cummins:]

Got it. That's helpful. And then a final question for me. I mean, options with the balance sheet, it was impressive in the latest environment. And I guess the environment early into Q2 actually see improvements in the balance sheet. I know you're expanding your borrowing capacity within the line of credit. But do you believe that there's going to be a need to draw down upon that here in the coming quarters? Or how are you thinking about the balance sheets here as we move forward?

[Mike Dugan:]

Well, so far, Zack, for Q2, we continue being cash flow positive and generating free cash flow. So, I think, while we have this flexibility, we have always been a strong flow -- strong cash flow generator, especially in these times. When you look at our company itself, we have very small capital appropriations and very small deferrals. So, there's not a lot of investment in fixed assets in the company. Basically the services we do are paid for by our customers and not prepared. So, we do have the flexibility from the bank. But hopefully, it's something we won't have to need.

[Zach Cummins:]

Understood. Thank you for taking my questions and best of luck as you move forward here in Q2.

[Mike Dugan:]

Thank you, Zach.

[Operator:]

And our next question is a follow-up from Jeff Martin. Please go ahead with your question.

[Jeff Martin:]

Thank you. Wanted to get a sense of your observations for return to work. Various parts of the world I mean, everyone has different approaches. But some of your international markets are probably starting to come back and just want to get a sense of what you're seeing and observing in terms of how that impacts the business.

[Scott Greenberg:]

Adam?

[Adam Stedham:]

Yeah. So, we were hit in early on because in China, as other companies who are in China are -- we're actually starting to see things recover a little bit there. We're starting to see some business reschedule in China. In the U.K. [technical difficulty]

[Scott Greenberg:]

I think we just lost Adam. I'm just double checking.And can you hear me? This is Scott.

[Operator:]

Yes, we can.

[Scott Greenberg:]

Okay. So, let me go on with Adam's question. First off, Zach, I just wanted to expand on one thing that we didn't discuss regarding liquidity. One of the things that we do have is that we get to defer certain tax payments, FICA taxes under the new U.S. rules. So, basically that is approximately $2 million a quarter that would start in Q2 where the first payment is in May -- late 2021. So, we do get some benefit from that and certain tax benefits in the U.K. and the furloughs, which will increase our cash flow as well in the upcoming quarters.Going back …

[Adam Stedham:]

Scott, this is Adam. I'm back. I don't know what happened. I was dropped, so I'm back on. When you finish, I'll go ahead and finish answering unless you answer.

[Scott Greenberg:]

No. I did not. I went back to liquidity for a second, Adam. So, you could go back to your answer.

[Adam Stedham:]

Okay. So, the U.K. business, the U.K. business has not started to come back. The parts that were canceled sort of have not started to come back as much. I don't know if everyone realizes that the U.K. just extended its furlough scheme this morning. So, a lot of our clients are looking at the government furlough plan and employee training and balancing that together. They're also trying to figure out the impact of the -- people being on furlough versus compliance training. And so, we're working with them on that.And then in the U.S. actually, I said the automotive industry has been the hardest hit. We're actually -- we're seeing things start to come back in May. We believe May will be more active than April. And then the current schedule shows June will be more so than May. So, the U.S. where we've seen the big automotive downturn, April was the lowest than May and then June will be the best for the quarter today.Does that answer the question? Sorry, I'm not sure what happened when I dropped there. Sorry for the disconnect. But did I answer your question?

[Jeff Martin:]

Yes. That's helpful. Thanks. I was just looking for some perspective on the reopening and what your observations have been. I mean, it's early in the U.S., but other parts of the world starting to -- so that helps. Thank you for that.And then wanted to get a sense of, if unemployment reaches 20%-plus, how does that impact revenue? Are you paid on per head basis in a lot of these contracts? And -- you don't have to quantify that, but qualitatively looking for some commentary.

[Adam Stedham:]

What I can say is historically, the unemployment and the amount of training doesn't necessarily correlate exactly. And the reason is because -- let's say, you have to train 20 people and then you let go of 20% of them, which increases your -- increases unemployment by 20%. You still have to train 16 people. It's just the training's going to be held for 16 people instead of 20. And our revenue basis is based upon whether we actually deliver the event or not. So, whether we deliver the event with 20 people in it or 16 people in it, as long as we deliver it, then it's the same.Now that's a gross oversimplification of our business, but hopefully that -- it helps you understand that there's really not the same correlation between unemployment and training deliveries as you might think.

[Scott Greenberg:]

And inserting -- Jeff, just adding to that. In certain cases as well, if the workforce is diminished, people have to be cross trained. They bring in new people in different positions that need these type of regulatory or different types of training. So, sometimes when there is a lessening of the workforce, there's actually more of a demand for cross training, which gives us new opportunities as well.

[Jeff Martin:]

And final question is around your acquisition strategy and kin of general outlook and approach. I would imagine that as visibility improves and things stabilize, you'll look to resume that. But just was looking for some commentary around that.

[Scott Greenberg:]

Well, we've made significant acquisitions in 2018 -- well, for us to leverage on our balance sheet, during that period. The focus right now is the continue integration of them and the improvement of those acquisitions and working on our business model that we have assembled. So, while I can't predict long-term future right now, the short-term future is not to be acquisitive to continue generating liquidity and at the same time focus on improving all the opportunities that we have.

[Jeff Martin:]

Make sense. Thanks for your time and be well.

[Scott Greenberg:]

Thank you, Jeff. Stay safe.

[Operator:]

And our next question comes from Alex Paris from Barrington Research. Please go ahead with your question.

[Alex Paris:]

Hi, guys. I just have a couple of follow-up questions. First, you noted that your face-to-face business is 25% to 30% of overall revenue and that's been the hardest hit. Can you break down the rest of the business similarly, like what percentage is virtual instructor-led or e-learning and then other segments of the business?

[Scott Greenberg:]

I'll start and then I'll hand it over to Mike and Adam. I think, a lot of what we do is blended and it's very difficult to give those type of numbers. I will say, if you're looking at our business in total, I could do it more by industry then the type of services that we typically do. But we do about 12% of our revenue was with the U.K. and U.S. government. About 8% is pharmaceutical as well. I mean, we do everything from virtual training to then the management. So, we have a lot of different services that are delivered both by standup instructors and it's delivered virtual as well.But that being said, I don't think we have firm figures on that, but I could turn it over to Adam to see what clarification he could give.

[Adam Stedham:]

Yeah. We don't track it that way, Alex. What I would say is, we've looked at our content development and somewhere in the 15% to 20% of all of our employees are dedicated to content development. So, we don't track the revenue based upon the work stream, but that gives you an employee account for that side of the business.Then if you look at our outsourcing business and other parts of our business that the way the outsourcing works, we provide a large amount of their infrastructure. So, we have people that are permanently assigned to those jobs and to those -- and I mean, a very significant part of -- as Scott talked about we have 60% of our revenue is multiyear contracts. So, a very significant part of that -- 60% of the revenue that's multiyear contracts is actually where we've taken over the infrastructure. So, we have a team of people who go there and they manage their learning and their development and all of their infrastructure on a daily basis. So that -- a very large percentage of that 60% fits in there.So, if you look some of that by the way is face-to-face instructor delivery, but that's more the way we look at it in terms of the multiyear contracts where we provide the infrastructure versus the -- in particular wins that we have to win every single year, which typically is less than 20% of the revenue.

[Mike Dugan:]

And Alex, this is Mike. Just to give a little bit more clarity, the content development, whether it's e-learning content development or virtual instructor-led content development, those modalities are throughout all of our services that we offer. If you look at just our dedicated content development effort, Adam, talking about 15% to 20% of our workforce, it's probably 13% to 15% of our revenue. Some of that workforce is outsourced in our lower cost areas. So, that's the -- that's the dedicated teams and the dedicated service lines just on content development activities. And that's where -- as I mentioned on the call, we're seeing an increase in demand for those types of services. So, just to give you a rough order of magnitude there.

[Scott Greenberg:]

Excuse me, Alex. Just to summarize. I mean, the reason it's difficult for us is that when we deal with a customer -- within one customer, we typically would have many modalities. So, when you look at our large financial service customers, our large automobile companies and pretty much every customer in the company, it's a combination of face-to-face.As Adam mentioned, managed service outsourcing, content development, and some areas we have a higher percentage of one modality as opposed to another. But in most customers, we're dealing with many different modalities of service, which we believe is going to give us the opportunity, because we've been working with them in many different areas.

[Alex Paris:]

Would you say virtual instructor-led training is more profitable or equal in terms of profitability than face-to-face instructor-led training, given you don't have the travel costs? Is that really the only difference?

[Scott Greenberg:]

If you -- so, the profitability on a day of learning really is probably is relatively the same, but the key to driving profitability of a training delivery business is instructor utilization. And as virtual instructor-led training scales, your ability to drive better labor utilization for your trainers is theoretically higher, which would improve the profitability of the business.

[Alex Paris:]

That's real helpful. Thank you. And then, I guess, my last question is, I think, you had talked about before in a press release and I recall this from other natural disasters, you have a big emergency preparedness and readiness business at GP. Is there any color you can give us on that business in this current crisis environment?

[Adam Stedham:]

Go ahead. Go ahead, Scott.

[Scott Greenberg:]

Well, basically, if you look at GP's history, Alex, we do have a history doing exercise programs preparedness for things like biological events and pandemics as well. So, we do some work. We work with the state of Indiana. We are starting to market it. Typically what happens is off service prepares for the future and does exercise programs and educates in that area. So, we're hoping that obviously once the initial crisis we get beyond that and people and organizations want to prepare for the future, then that's how we develop our revenue. So, we are getting some jobs now, but really the impact will occur after the fact when it's become more normalized. If you look back at 9/11, it wasn't until a year afterwards when people started focusing on preparing in case there was a future event there we generated that type of revenue stream.

[Adam Stedham:]

Yeah. I mean, we had a specific scope of work. We actually did the training in the state of Indiana for bird flu pandemic preparedness, right? So, to Scott's point, as people move to the preparedness phase, we've done this type of work. And we have different government vehicles in place that would allow us to be contracted. Just no one's moved to that next phase yet.

[Alex Paris:]

Great. Thank you. And then, I guess, just one last point of clarification. You said in the press release that you expect the COVID-19 to negatively impact revenues more significantly in the second quarter as compared to the first quarter. Are you talking about a year-over-year percentage decline, a year-over-year dollar decline or a sequential decline in dollars versus the Q1?

[Mike Dugan:]

So, Alex, this is Mike. So that was a comparison to Q1 of 2020 and our reported EBITDA, we expect with the revenue decline in 2020, that would be further decline compared to Q1 of 2020. And -- but we do expect with the cost scaling and cost-cutting, that our EBITDA for Q2 should be consistent with or even improved from Q1 just due to the delay, the late enactment of the cost-cutting in mid-March of Q1.

[Alex Paris:]

So, just to be clear, you just reported $128 million in Q1 revenue. Q2 revenue you expect to be lower than that number, lower than $128 million.

[Mike Dugan:]

It's -- yes. It's going to be a larger impact in net dollars. So, we were down $11 million related to COVID. The COVID impact is going to be significant in Q2 more than the $11 million that we were down in Q1.

[Alex Paris:]

Gotcha. And then -- yeah, absolutely. Thank you for that. And then you did say that you expect the second half revenue Q3 and Q4 revenue to experience declines as well -- year-over-year?

[Mike Dugan:]

Year-over-year, yes. But the second half versus first half of 2020 improvement in the second half.

[Alex Paris:]

Very good. Thank you for that.

[Mike Dugan:]

Yeah.

[Operator:]

And ladies and gentlemen, at this time I am showing no additional questions. I would like to turn the conference call back over to Mr. Greenberg for any closing remarks.

[Scott Greenberg:]

Thank you. Hopefully, you found today informative. GP Strategies will continue to work on maximizing liquidity, reducing cost, and then reestablish our business model.So, thanks again and everybody should stay safe out there.

[Operator:]

Ladies and gentlemen, with that we'll conclude today's conference call. We thank you for joining today's presentation. You may now disconnect your lines.