GP Strategies Corporation
Q3 2016 Earnings Call Transcript

Published: 1 Nov 2016

[Operator:]

Good morning. My name is Tia and I will be your conference operator today for the GP Strategies’ Third 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 call is being recorded. Thank you. I will now 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’ third quarter 2016 earnings call. On the call this morning are Scott Greenberg, Chief Executive Officer; 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 couuld 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 website later today. And at this time, I’d like to turn the call over to Scott.

[Scott Greenberg:]

Thank you, Ann. Good morning and happy Halloween last night and welcome to our third quarter 2016 conference call. This morning before the market open, GP Strategies announced its earnings for the third quarter of 2016. While third quarter of 2016 revenue was down slightly, strong performance in our Sandy Training & Marketing and Performance Readiness Solutions segments offset the continued downturn in the Professional & Technical Services segment and the dramatic decline from foreign currency fluctuations. Our Learning Solutions segment also achieved organic revenue growth during the third quarter, excluding the net impact of foreign currency. In addition, we recently completed the acquisition of Maverick Solutions, giving GP Strategies enhanced training capabilities in the ERP arena. Deb Ung, our Senior Vice President will give you a little bit about Maverick Solutions later on in the presentation. We continue to pursue each acquisitions and are currently evaluating additional opportunities and have, at least, one that is fairly far along. So we look forward to closing one in the near future. We are beginning to see some opportunities that demonstrate our global capabilities, including one from a multinational pharmaceutical company that was announced last quarter. We are currently negotiating a definitive agreement. We anticipate revenue commencing in the first quarter of 2017. Last quarter, I reported that, GP Strategies was notified as a $35.9 million five-year award from a foreign petroleum company. We are seeing the potential of additional foreign opportunities for 2017. In the third quarter, the company achieved revenue of approximately $122 million, which was relatively flat compared to the third quarter of 2015, despite the reduction of approximately $5.2 million from the Professional & Technical Service group and a decrease of approximately $4.4 million due to the unfavorable changes in foreign currency. Excluding the Professional & Technical Service group revenue, revenue grew by approximately 5% without adjusting for currency and 8% adjusting for constant currency. In 2015, the company announced an additional share buyback program of $15 million and repurchased approximately 340,000 shares, or $8 million of stock in the open market during the nine months ended September 30, 2016, and have approximately $6 million remaining under the program at September 30, 2016. We’re approximately 3% less shares currently outstanding on a fully diluted basis compared to the third quarter of 2015. EBITDA for the quarter was approximately $9.5 million compared to $8.2 million for the third quarter of 2015. Some companies that add-back non-cash compensation expense to EBITDA on a pro forma basis. These expenses for the quarter were approximately $1.6 million. Backlog hit a record of approximately $302 million, while it includes our major contract from a petroleum company, which is over five-year period, it has still improved excluding this overall. In 2013 through 2015, we invested heavily in building our global reach and we’re anticipating seeing the returns of these investments in years to come. We added all the 13 global offices to the company and our revenue in the Asia-Pacific region is in excess of $20 million, 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. Our goal is to continue to establish GP Strategies brand in this highly fragmented industry. We routinely get asked on the market of the massive trading business, which is now estimated to be over $100 billion globally, and our largest competitor continues to be an in-house company’s training the pilots. We understand that we are playing in a highly fragmented industry and look forward to continued execution and continued acquisitions to extend our base. On previous calls, we discussed initiatives to expand in the financial insurance sector. We started our initiative performing in the sector approximately five years ago, and for the third quarter, our revenue from this sector was approximately 20% of total revenue. We’re not only investing in these areas, but are now making a major push into the pharmaceutical sector and has very positive attribute for GP Strategies services. With that being said, Sharon will now give a detailed financial presentation for the quarter.

[Sharon Esposito-Mayer:]

Thanks, Scott. Good morning, everyone. We reported third quarter revenue of $122 million, which was down 1% from $122.9 million in the third quarter of 2015. During the quarter, we experienced growth in our Sandy and Performance Readiness Solutions segment. We experienced a $4.4 million revenue decline in the third quarter of 2016 due to foreign currency fluctuations, which largely impacted our Learning Solutions segment and our Professional & Technical Services segment continued to experience a decline over 2015. Sandy’s third quarter revenue of $26.6 million represented a $4.5 million, or 20% increase over the third quarter of 2015. There was a $5.6 million increase in training services for an automotive client related to a vehicle launch and a $2.7 million net increase in dealership training services. These increases were offset by a $3.8 million decline in publications revenue due to a partial shipment of a publication during the third quarter of 2016, that was fully delivered in the third quarter of 2015. We’re projecting a total of $6.6 million of publication revenue in the fourth quarter, which compares to $3.2 million in the third quarter of 2016 and $9.8 million in the comparative fourth quarter of 2015. The Performance Readiness Solutions revenue also increased by $300,000, or 2% over the third quarter of 2015. The net increase is primarily due to an $800,000 increase from a new technical training contract with an aerospace customer and a $300,000 increase in platform adoption training services. However, these increases were partially offset by a $500,000 decline in leadership development services and a $300,000 decline due to unfavorable exchange rate. The revenue increases in Sandy and Performance Readiness Solutions were offset by revenue decreases in our other segments. Revenue in the Learnings Solutions segment decreased by $500,000, or 1% over the third quarter of 2015. There was a $3.2 million decrease in revenue due to unfavorable exchange rates in this segment. But this decrease was partially offset by a $1.4 million net increase in e-learning content development and business process outsourcing services, and a $1.3 million revenue increase related to the JenCal UK job skills acquisition completed on March 1st of this year. Professional & Technical Services revenue decreased $5.2 million, or 17% compared to the third quarter of 2015. The decreases were due to a $2 million decline in revenue from oil and gas clients, a $1.5 million net decrease in engineering and technical services, a $400,000 decline in training and professional services for energy clients, a $400,000 decline in alternative fuels revenue, and a $900,000 decrease in revenue related to a decline in exchange rate. The automotive sector comprised 22% of our revenue year-to-date compared to 18% year-to-date September 2015, and the financial and insurance sector comprised 21% of our revenue in both year-to-date September 2016 and 2015. We continue 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 13% of 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 decreased in the third quarter by $400,000, or 2%. Gross profit as a percentage of revenue also decreased slightly to 16.4% compared to 16.6% in the third quarter of 2015. The decrease in gross profit was largely due to a $1.9 million decline in gross profit in the Professional & Technical Services segment due to the revenue decreases in this segment. This decrease was partially offset by a $1.1 million increase in gross profit in the Sandy segment, and a $400,000 increase in the Performance Readiness Solutions segment. Gross profit in the Learning Solutions segment was relatively flat and included 400,000 of gross margin related to the JenCal acquisition completed on March 1, which was offset by a $600,000 decrease in gross profit due to a decline in exchange rates in that segment. SG&A decreased $300,000, or 2% to $12 million. SG&A costs included a $300,000 decrease in bad debt expense and a $200,000 decrease in the amortization expense. These decreases were partially offset by a net $200,000 increase in labor and benefits expense. SG&A cost in the quarter included $300,000 of legal expenses related to acquisition activity. Operating income of $8 million in the third quarter of 2016 was a $1.1 million increase over the third quarter of 2015. This was primarily due to a $1.2 million nonrecurring restructuring charge recorded in the third quarter of 2015 related to a cost savings initiative. Other expense was less than $100,000 in the quarter, which was a $600,000 improvement compared to the $600,000 loss recorded in the third quarter of 2015. The increase over the third quarter of 2015 was primarily due to a decrease in foreign currency losses in 2015. Third quarter 2016 income before taxes increased by $1.7 million, or 29% to 6.2% of revenue from 4.8% of revenue in the third quarter of 2015. Tax expense was $2.8 million in the quarter, or a rate of 36.9%, compared to $2.2 million, or 37.2% in the third quarter of 2015. We are projecting a tax rate of 37.1% for 2015. Third quarter net income was $4.8 million, or a 29% improvement over the third quarter of 2015, and earnings per share were $0.29, compared to $0.22, or $0.07 improvement. Moving on to the balance sheet. Our cash balances were $15.7 million at September 30, compared to $21 million on hand at the end of 2015. During the year, we spent $8 million on share repurchases. We also spent $2.5 million to fund the job skills acquisition completed on March 1, and $2.6 million in Q2 on earn-out payments. We generated a $11.9 million of cash flow from operations year-to-date compared to $9.5 million year-to-date September 2015. The $11.9 million is comprised of year-to-date income of $13.5 million plus non-cash add-back to net income, including depreciation of $5 million and non-cash compensation of $4.5 million. These items were partially offset by a $1.1 million decrease in changes from other operating items. Fixed asset additions were $1.2 million compared to $1.8 million year-to-date 2015, and we generated free cash flow for the nine months of $10.7 million, compared to $7.7 million in 2015. At the end of September, backlog was $302 million, compared to $251 million at June 2016 and $247 million at September 2015. $34 million of the backlog increase is for contract within international oil and gas customer that will be performed over the next five years. With the exception of this contract, approximately 95% of the backlog will be recognized as revenue within the next 12 months. At this time, I will turn the call back to Scott who will discuss some operational highlights.

[Scott Greenberg:]

Thank you, Sharon. Doug usually gives us part of the presentation, but he is currently recovering from a surgery, so I will cover the message today. This is an important seek into GP Strategies. We are currently in competencies in for the training industry and GP Strategies is being recognized for our leadership in a broad range of areas, market sectors and geographies. These awards demonstrate our ability to execute enterprise learnings for our global customers and innovation. We won the most award for GP Strategies, 13 brands and whole awards that excellence in learning, including a gold for best learning team for our work at Merck, best advance in employee engagement at SunTrust, and best results for our learning program at MasterCard. We also won three awards from Chief Learning Offer and two awards from Training Industry, Inc. clearly demonstrating our role as a leader in the performance improvement and training space. Second, what I’d like to discuss is, we now assembled a team that’s led by a long-term GP employee, Dan Malone [ph] and he’s going to promote corporate opportunities in the pharmaceutical, automotive and financial space. So with the core savings that we had in prior periods, we were able to assemble a new team to go into go work to GP and new veterans. Looking at awards, the first area I would like to talk about is our automobile [indiscernible] Sandy. As we discussed in prior periods, we won a lot of long-term contract with our store customers, which really gave us bandwidth to expand from where we normally did work in. One thing we did this year is an Asian automobile manufacturer, we are now doing delivery in North America and that’s a new assignment for GP. So the new brands have been added to the mix. In addition, certain of the brands are wanted to be like Lexus and want to be like Infiniti have spun off brands, including Hyundai, including Cadillac as far as marketing and development and we’ve been involved and hopefully we’ll continue to be involved in development of work for them. And lastly on the Sandy side, we have now entered an arena for GP that was something that we did probably 15 to 20 years ago. We’re now starting to get move involved in technical training and service training, and then we’re now having meetings with some of our manufacturers regarding that. So expanding Sandy from just sales training into technical training and service training is one of our key initiatives. And then lastly, we just have an open house in China and we’re currently doing business for companies like Porsche and Mercedes-Benz in China. And that’s expanding a lot of automobile manufacturers attended our open house in China. So hopefully, that’s a good sign for the future. On the Learning Solutions side, one of the areas that we’ve gotten real strength in, we’ve got the human capital with our work with success factors. We’ve won a lot of multimillion dollar awards and high $100 million dollar awards during the quarter. So using capital and our work in training in this area appears to be a solid venue for GP Strategies service. And on the Professional & Technical Services, I talked about earlier that with the major petroleum win, we are seeing opportunities for 2017 and beyond that could be substantial. So we think we have an entree and a foothold into the foreign petroleum business. In addition, even though revenue is down in this group, they have had one particular area that’s demonstrated success and that’s our aided pro software, which does power plant optimization and has a very strong year for this year. As I mentioned earlier, Debbie Ung who runs our PRG Group Performance Readiness Group is with us today, and she’ll give you a little bit insight on our Maverick acquisition. Why we did it? Why we think it’s going to be successful? And it really gives us the criteria for acquisitions that we want to make in the future. So thank you. Over to you Debbie?

[Deborah Ung:]

Thanks, Scott. We’re pleased to have Maverick solutions joined GP Strategies effective October 1. Since 1999, Maverick has specialized in providing project team and user adoption training to organizations implementing Oracles ERP software. With a focus in the healthcare, higher education, and public sector industries, they work with organizations like MD Anderson, Harris County in Texas, and the University of California office of the President on the multiyear software implementation initiative. Maverick client base will provide GP Strategies entree into both the education and healthcare sectors. More recently, Maverick has been one of the first to introduce to market few subscription-based product offering. The first is engaged at cloud-based training offering that supports Oracle cloud implementation. The second is a product called Enroll, also a subscription-based training offering for PeopleSoft Campus Solutions. We’re seeing early adoptions of both of these products by several leading higher Ed institutions. As we integrate Maverick into GP, we look to leverage the presence in the industry they’re established in and introduce a greater GP offerings to those customers, as well as extend our current footprint in our existing GP client with Maverick offerings. In fact, this morning, we’re introducing Maverick capabilities into one of our leading global automotive customers, and we look forward to replicating this in many more of our accounts. Scott?

[Scott Greenberg:]

Thanks, Debbie. Before I turn it over to questions, I just wanted to thank everybody for joining us. But in addition, we have our Investor Day coming up at December 1, 2016, space is limited in Investor Day, so please sign up. I believe based upon New York Stock Exchange rules that everybody has to sign up, or at least, one week before the Investor Day. And again, I see people signing up every day, so it looks like we have good attendance. So please sign up and try to get us on before Thanksgiving, which is the cut off day that’s assuming the data. We’ll have all the group leaders there, financial people, and hopefully, we’ll have a good day really going below the hood, I guess, GP and our automobile business will always go below the hoods and you get that go below the hood and work with the company. So again, I’ll turn it over to Q&A right now.

[Operator:]

[Operator Instructions] Our first question is from the line of Jeff Martin. Please proceed.

[Jeff Martin:]

Thanks. Good morning, guys.

[Scott Greenberg:]

Hi, Jeff.

[Jeff Martin:]

Scott, could you expand on the Learning Solutions segment what the success factors you mentioned several multibillion-dollar awards and several six-figure deals. Just curious what kind of impact…?

[Scott Greenberg:]

Well, I would say the $1 million – close to $1 million awards and six-figure deals, I don’t think there’s a size you have to get multimillion dollar with the integration we built. But let me just turn it over to Don, who runs the Learning Solutions group. I think he will give a little more insight on that.

[Don Duquette:]

Sure. We’re seeing strong growth, as you know, most companies now moving from on-premise solutions to the cloud success factors from a human capital management side in the last Gartner Magic Quadrant showed that success factors was the leading human capital management software. So there has been a significant amount of customers coming to make those switches and success factors, I think, has a fairly extensive partner network and we’re one of their premier partners. So we’ve been getting a significant amount of opportunities in each one of those spaces. And they continue to come and they’ve been primarily been in New York, as they continue to – that country continues to move quickly to a cloud-based solution.

[Jeff Martin:]

Okay, great. And then Scott, if you could prioritize your top three initiatives today would they be growth within Sandy and improving the Performance Readiness and Professional and Technical and maybe you could just help us walk through…

[Scott Greenberg:]

Well, we…

[Jeff Martin:]

What I’m ultimately going to get at is you probably have one more quarter of flattish type revenue performance, but then in 2017 you should start to see some return to your mid-upper single-digit organic growth that’s ultimately what I’m trying to get at?

[Scott Greenberg:]

Yes, I mean the – when we look at it, Jeff and that’s a great question. And I think when we divide our initiative. First, it’s by sector and then it’s by deliverables. So, I would say by sector, if we have four sectors that can really start organic or the organic growth engine going again. The first sector is automotive, which did show great organic growth this year and hopefully it will continue. The second is financial services, as far as sector. And the third now is pharmaceutical need to win that we hope to ramp up in the first quarter of last year and into the second quarter. And as I mentioned, on the last call that would be a global initiative that could be a substantial revenue generating on the call for GP. So though – and then the last way is well Professional and Technical service group overall have shown down a trend, we’re seeing some opportunities in the international oil and gas space, including the win that we had this year. So, I think those are the four spaces or the four industries that we anticipate getting some of our future growth. That doesn’t mean we’re not working hard in other industries we work in, but those are the leading industries of GP. When you look at the types of the services that we do in these industries, I would say those services will continue with things like BPO Solutions where we do administrative outsourcing, content development. But now we have the ability with certain of our acquisitions and certain of our products to get incremental higher margins and that’s where things like Maverick comes in that’s where our work with success factors comes in, that’s where our work with leadership training comes in. So it’s combining the industries that I mentioned with the type of products that we do both new and old. Lastly, the number one driver of all of it that we hope to get the benefit of is now being able to deliver globally to our customer base. So, we think we have the industry expertise particularly in those industries. We think with pulling out our product lines, with the acquisitions that we’re doing and now with our development of our global initiative we have offices all over the world to serve our companies, which is really a key differentiator in the fragmented training space.

[Jeff Martin:]

Okay and then just curious from how about – could you characterize the environment for bringing on new clients to that global platform, because I think that is what everybody is looking for, is you to leverage that investment maybe give us [Multiple Speaker] pipeline and then, yes sorry go ahead.

[Scott Greenberg:]

Yes, that’s the question we’ve been asking for two years and when we first won the large financial services we were expecting to be able to generate additional global revenue faster. And it took us longer to develop it and also as we discussed last year bringing in senior people to run these offices. We’ve done that in 2016 and I think the pharmaceutical is really the first concrete evidence of this type of platform working more substantially. Now that doesn’t mean that it hasn’t been involved in winning different jobs because in order to maintain and grow with our currency we have to win additional work. But this is – this could be substantial mark. So I think this is really the first major indication that we have on a very large job at least not the small job we won, but a large jobs that demonstrates the platform and potentially being able to expand revenue on a faster basis, which again than we all anticipated to recur in 2015, but it was delayed unfortunately. But now I think, we have a format in place, where we can accomplish that.

[Jeff Martin:]

Okay, great. And then last question is, the two largest customers one in Sandy or the automotive, and one in financial services, what’s your expectation for 2017 in terms of growth or stability in – from those two clients?

[Scott Greenberg:]

Well, right now looking at our larger automotive company, we’ve experienced already good growth over the last three years. We’re also looking to get into other areas with that including, service, excuse me, service training and technical training as well. So I believe that there are still other areas that we could expand with them. So we’re looking very positive for growing our relationship with them. On the financial services customer, right now we maintained our average, but we have got in here our currency in that area. So we are looking at additional opportunities with them, additional projects with them. So again, there’s nothing to believe that there will be a downturn in that customer as well.

[Jeff Martin:]

Okay, great. That’s very helpful. Thank you.

[Operator:]

Our next question is from the line of Kevin Liu with B. Riley & Co. Please proceed.

[Kevin Liu:]

Hi, good morning.

[Scott Greenberg:]

Good morning, Scott.

[Kevin Liu:]

Good morning. In terms of the Sandy business, obviously, some very nice growth. You’ve seen accelerating growth in each of the past couple of quarters. How big is this opportunity for you guys on the technical and services training side? And what sort of impact does that have on the gross margin profile for this segment?

[Scott Greenberg:]

Well, I don’t think it will impact the gross margin profile of this segment. I think that this type of initiatives isn’t that something that’s going to be built in one quarter. So I think, this is – we have different opportunities and different initiatives. This one is really at its infancy stage as opposed to some of the other. I believe we had our first meeting Don, was it today or yesterday, regarding some of this type of work with the customer, we’ve had an additional meeting with them. So I think we have our foot in the door right now, and I think it’s potential, but this isn’t something that’s we’re excited, going to pop in the next quarter. It will be something that hopefully, we can grow nicely and give Sandy additional growth in the years to come.

[Kevin Liu:]

Got it. And maybe just a follow on to that, you guys had a nice vehicle launch training win within the quarter. Is that expected to persist for a couple of more quarters here, or how should we defeat that? And then what do you kind of consider a sustainable services growth rate as far as the Sandy business?

[Sharon Esposito-Mayer:]

Yes, Kevin, the quarter had about $5 million of revenue relating to the launch services that we provided that will not continue, that launch work is predominantly done. So sequentially that will be a quarter-over-quarter revenue decline as we go from Q3 to Q4. However, they will have about $3.4 million uptick in publication revenue and they have some other opportunities that will provide some increased revenues to offset the publication revenue. But just looking forward, Sandy’s Q4 revenue should probably be close to what it was in Q3 just because the launch work is predominantly concluded.

[Scott Greenberg:]

But the one thing when you look at Sandy and we go into 2017, they already have a higher percentage of their revenue that they know or that they could see than they ever had before. So going into 2017, they already probably have over 80% maybe even 90% of this year’s revenue that they could see. So again, while 20% growth for those type of growth rates, I don’t think is sustainable. We believe that them achieving our overall growth rate of 8% that would poise given it’s our long-term growth rate or more should be achievable within this business unit.

[Kevin Liu:]

Got it. And in Professional & Technical Services, can you talk about how much contribution you saw in Q3 from the large award and then outside of that award, how are you feeling about the rest of the business today? Do you feel it’s relatively stable that, are there opportunities to grow that going into 2017?

[Scott Greenberg:]

Yes. I mean right now, when we said it was fully ramped up, we would expect it $2 million to $2.5 million per quarter. That’s taken longer than we expected. So the revenue in Q3 was actually below $1 million for the quarter. So we would anticipate not in the fourth quarter, but we would anticipate it’s time to ramp up next year to get to that level. That being said, the Professional & Technical Service revenue, we did expect that sequentially go up from Q2 to Q3 and that did not happen. However, that being said, again, it’s still early in the quarter, but we do expect it to go sequentially up from Q3 to Q4.

[Kevin Liu:]

Great. And just last one on the acquisition of Maverick. It looks like they were about $8 million in revenues last year. What sort of growth did you expect for that business as a whole in 2016? And then should we expect that growth rate to kind of sustained moving forward?

[Scott Greenberg:]

Well, the one thing that I look at, Kevin, and that’s a great question. When I look at the BlessingWhite acquisition, we did a leadership training in the first few years. When they were able to leverage GP Strategies customers, they have a very substantial growth rate in their first few years leveraging GP Strategies customers. So I personally, again, would expect a higher than average growth rate from Maverick Solutions. The first few years, I expect, I might get some [indiscernible] about, I would expect about a 20% growth rate, at least, the first year or two out of the math.

[Kevin Liu:]

All right, sounds good. Congrats on a very nice quarter.

[Scott Greenberg:]

Thank you, Kevin.

[Operator:]

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

[Scott Greenberg:]

Hi, Alex.

[Operator:]

You maybe on mute.

[Alexander Paris:]

Hi, sorry, I was on mute.

[Operator:]

Okay.

[Scott Greenberg:]

Okay. Did we answer the question right?

[Alexander Paris:]

So, just a couple of follow-ups and questions that were already asked, I guess. And I guess, this is for Don. Don, I’d like if you wouldn’t mind to dive a little deeper into the success factors business. How exactly does that work? Success factors is the – is client facing and GP is providing content. I assume and then how does the customers select content? Is it all are nothing and GP just it goes along with that, or they have to select GP content from within the catalog, and then how are you paid on it?

[Don Duquette:]

Okay. So it is not content. The success factors human capital management system is the actual software that a company would use to do all of the HR functionality, which would include benefits, compensation, performance. So the success factors suite, which is being installed, so success factors they sell the licenses. My team would do lead installation of the product in the company. The strategic advantage of that is that in all cases, you’re working with HR and then 90% of the Fortune 500 companies, HR is teamed up with learning, so learning typically reports under the HR function. So that gives us in companies the direct connection, if we haven’t been involved with them before and to their learning organization to help with the installation of the human capital management suite, which does include the learning management system. So that gives us an entry into a client to then start selling the BPL services around administration content development that we’re talking about.

[Alexander Paris:]

I got you. So sort of like a systems integrator in that regard?

[Don Duquette:]

Correct, exactly correct. The systems integrator would be the exact definition, yes.

[Alexander Paris:]

And then from your comment that it’s primarily in Europe there must be other systems integrator and you’re doing a particular geography, is that how it works?

[Don Duquette:]

There – I think there are many. SAP success factors has a lot of system integrators. But we’ve been fair – we’ve been very good at installing them to the high satisfaction of the customer and we won multiple awards from SAP for our installation. So they’re looking at picking the system integrators that are ultimately going to cause the best customer satisfaction and make sure that the license is continuing to get renewed because you know in the Cloud base there is an annual renewal of that license and so there is an application to making sure that customer continues to be happy. So, I think we’ve been winning a good amount of the success factors true-ups that have been coming up in Europe.

[Scott Greenberg:]

And that’s one of our strategies Alex and that if we have the 125 global 500 companies customers of GP, as we add the products whether it’s Maverick Solutions, or SuccessFactors work, which was done through our effective people acquisition in Denmark, or our leadership training acquisition, which kind of occurred a few years ago through blocked [ph] and why so we are getting all these service lines that tend to be higher margin products and we are using our core base business of administration outsourcing services and content development and learning services to get our foot into the door to sell these other product lines.

[Alexander Paris:]

Got you. Thank you. And then just to be clear, shifting gears, you said within PTS the Kuwaiti contract was less than $1 million in revenue in the third quarter?

[Scott Greenberg:]

That’s correct.

[Alexander Paris:]

You are referring to the Kuwaiti contract. So, when you say it is going to ramp up in Q1 2017 you are just being kind of getting to the point at which that quarterly run rate that you expected.

[Scott Greenberg:]

Yes may not be in Q1, but you would expect it by Q2 to finally get to the quarterly run rate that we would expect.

[Alexander Paris:]

Okay and then I guess lastly, you’ve done two acquisitions year-to-date Jencal and Maverick and you say you got another one on tap, should we expect similar size similar cost or are these bigger acquisitions?

[Scott Greenberg:]

Historically, the Jencal acquisition was small. We pretend to say our bandwidth for revenue is $10 million to $20 million of revenue. However, this year they were slightly smaller than that, but we typically do say however that we’re very selective in our acquisitions and we go through a lot of due diligence and hopefully I get this term right and we kicked the tides quite often on these acquisitions. And in effect that I would say that we try to limit it to 3 to 4 good ones per year, but hopefully going into next year the size-wise we’ll be slightly larger than the three that we have – the two we’ve completed and the one we are currently looking at.

[Alexander Paris:]

Great. Well thank you very much for that additional color. Looking forward to the Analyst Day in December.

[Scott Greenberg:]

All right, thank you Alex, it’s a pleasure.

[Operator:]

The next question is from the line of Gary Bragar with NelsonHall. Please proceed.

[Gary Bragar:]

Yes, hi everyone. I appreciate the update. Just a couple of quick questions, I think the first two might be for Sharon, and I apologize because I think it’s on mostly information you were giving when I was trying to raise down [indiscernible] I missed, but the first, I mean what I caught in terms of what your larger sectors where, I caught where you said financial and insurance is 21% of your revenue, and I missed the first that you said before that?

[Scott Greenberg:]

Automotive is right now our largest sector, along with financial services. So automotive is probably in the neighborhood of 20%.

[Sharon Esposito-Mayer:]

I did note this comprised 22% of our revenue year-to-date this year in comparison to 18% last year, and financial and insurance was actually 21% both for the year-to-date 2016 and 2015 period.

[Gary Bragar:]

Okay great, thank you. And then the second question was, I missed the percentage of your business that’s from global outside of the United States and what you would anticipate for 2017, and congratulations by the way on the MNC client coming on board in 2017, but what was the percent outside of the U.S. for 2017 [ph].

[Sharon Esposito-Mayer:]

It was 29%. And that was also consistent with 2015.

[Gary Bragar:]

I’m sorry, what was the percent?

[Sharon Esposito-Mayer:]

29%.

[Gary Bragar:]

29%. Okay, you are really growing. And then the final question regarding the one MNC client coming on board what services are going to be provided to that client?

[Scott Greenberg:]

Are we talking about the pharmaceutical customer?

[Gary Bragar:]

Yes.

[Scott Greenberg:]

It will be content development and administration outsourcing – learning outsourcing.

[Gary Bragar:]

Great. Thanks very much. I appreciate it. Congratulations again.

[Scott Greenberg:]

All right, thank you for participating.

[Operator:]

We have no further questions. I’ll turn the call back to you.

[Scott Greenberg:]

Thanks moderator. Thanks for participating on the call. Again, we heard a few of the comments during the call about our Investor Day December 1, 2016 at the New York Stock Exchange. So hope to see you there, but if you have any questions in the interim, please feel free in contacting us. And thanks for being on the call.

[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 line.