GP Strategies Corporation
Q3 2015 Earnings Call Transcript

Published: 31 Oct 2015

[Operator:]

Good morning. My name is [Sven] [ph] and I will be your conference operator for today for the GP Strategies Third Quarter 2015 Earnings Conference Call. All lines will be placed on mute to prevent 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 would now like to turn the call over to Ann Blank, Director of Investor Relations. Please go ahead.

[Ann M. Blank:]

Thank you. Good morning and welcome to GP Strategies Third Quarter 2015 Earnings Call. On the call today are Scott Greenberg, Chief Executive Officer; Doug Sharp, President; and Sharon Esposito-Mayer, Chief Financial Officer. Before we begin, I would like to remind you that today's comments will include forward-looking statements, which are subject to certain risks and uncertainties that could cause our actual results to be materially different from expectations. For a complete discussion of these risks, we encourage you to read our documents on file with the SEC, which are posted on the Investors section of our Web-site at gpstrategies.com. A replay of this call will also be available on our Web-site later today. At this time, I'd like to turn the call over to Scott.

[Scott N. Greenberg:]

Thank you, Ann. Good morning and welcome to our third quarter 2015 conference call. Today, we will follow our usual quarterly format. To initiate the call, I'll provide a brief overview of the results of the third quarter of 2015, then Sharon will present an in-depth financial analysis, and Doug will give key updates on our global initiatives. After Doug's presentation, I'll provide a final summary and then we'll conclude with a Q&A session. This morning GP Strategies before the market opened announced its earnings for the third quarter of 2015. In summary, our third quarter results reflect both successes and challenges. GP Strategies continued to achieve organic growth in its core business including a significant increase in profit margin in the Learning Solutions segment. We accomplished this despite the continued and negative impact of foreign currency fluctuations on our reported results and lower revenue in our non-core alternative fuels business, which we've discussed many times before. In addition, we are effectively implementing our previously announced cost-cutting initiative which we anticipate will contribute positively to our operating results beginning in the fourth quarter. We continue to be optimistic about the future and are starting to see some opportunities that Doug will talk about from our past investments in global initiatives. We are also hiring additional people, new business leaders to further grow our international operations and are now looking for acquisitions returning to a strategy which has contributed positively to GP Strategies' growth over the years. Our largest sector was a highlight in the third quarter, and that highlight was, the operating profit of our Learning Solutions group increased from $3.3 million to $4.8 million or 45%. In the third quarter, the Company achieved revenue of $122.9 million despite the elimination of approximately $4.5 million from the alternative fuels group and a reduction of approximately $2.8 million due to the unfavorable changes in foreign currency. Adjusted for these items, organic revenue growth would have been 5%. While not where we've given our long-term goal of 8%, it's definitely moving in the right direction. To improve our operating margins, we implemented cost-cutting initiatives in the third quarter which will continue in the fourth quarter and it is in target to result in a net $10 million cost savings on a yearly basis. This will better align cost with revenue to achieve improved operating margins. The cost reductions have also enabled us to begin investing in additional business we did in some of our high potential international markets and launching new sales initiatives to enhance organic growth. In addition to affecting revenue in the third quarter of 2015, foreign currency fluctuations negatively impacted pre-tax income by $1.1 million, restructuring charges were $1.2 million and self-funded benefits expense increased by $800,000. As part of the cost reductions, the Company is reviewing its medical plans for 2016. One of the things that measure the future revenue of GP Strategies is backlog and I'm happy to say that the Company for September quarter had an all-time record backlog of approximately $247 million. That represents approximately a 9% growth over the backlog in September of last year. We also have been active on the share buyback program. We have repurchased shares of GP Strategies in our buyback program in the open market of approximately 220,000 shares during the quarter and have approximately 8.4 million remaining in our buyback program announced in the fourth quarter of 2014. In 2013 and 2014, we invested heavily in building our global reach and we anticipate seeing the returns of these investments in the near future. We added approximately 13 global offices to the Company. This will not be impacted by our cost-cutting measure and is actually a planned area of future investment and expansion. We believe this continued investment will enable the Company to execute on a global basis. This strategy will continue to be a key differentiator for GP Strategies. We are currently doing business with approximately 25% of the global 500 customers of the world. This is up from below 10% five years ago. 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 training business of the world, which is now estimated to be over $100 billion globally. Historically, I gave you domestic part of the business which is estimated at $60 billion, but you could see with our global expansion, our market has expanded dramatically. Our largest competitor is actually the in-house companies' training partners. We understand that we are playing and executing in a highly fragmented industry and we look forward to the future. On previous calls, we discussed initiatives to expand into the financial and insurance sector. We started this initiative performance approximately five years ago, and in the nine months of 2015 our revenue approached 21% of our total revenue. With that being said, Sharon will now give a detailed financial presentation for the quarter.

[Sharon Esposito Mayer:]

Thanks, Scott, and good morning everyone. We reported third quarter revenue of $122.9 million, which represented a $900,000 or 1% decline over the third quarter 2014 revenue of $123.9 million. During the quarter, we experienced a $4.5 million reduction in revenue from our alternative fuels business due to the completion of several projects during 2014, and a $2.8 million reduction in revenue due to a decline in exchange rates compared to the average exchange rates during the third quarter in 2014. These decreases contributed to a 6% decline in revenue over the third quarter of 2014. Excluding these decreases, revenue increased 5% primarily due to strong revenue growth in our Sandy and Learning Solutions segment. Sandy's third quarter revenue of $22.1 million represented a $6.2 million or 39% increase over the third quarter of 2014, primarily due to an increase in publication revenue for an automotive customer. Third quarter 2015 publication revenue was $6.9 million, compared to $400,000 in the third quarter of 2014. The $6.9 million of publication revenue included $6.3 million of revenue for a new lower-margin publication contract which started in the second quarter of 2015. We are projecting a total of $9 million of publication revenue in the fourth quarter which includes $6.2 million of revenue related to the new award which will have lower margins in the single-digits. Revenue in the Learning Solutions segment increased by $2.2 million or 5% over the third quarter of 2014. It was a $3.5 million net increase in eLearning and Training Outsourcing services primarily for the financial sector and an $800,000 increase in U.K. government-funded skills training. These increases were partially offset by a $2.1 million decrease in revenue due to a decline in exchange rates compared to the third quarter of 2014, which had a 4% impact on revenue growth in this segment in the quarter. Professional & Technical Services revenue decreased by $5.8 million or 16%, largely due to the $4.5 million decline in alternative fuels revenue due to project completions in 2014 and a $700,000 decrease in revenue due to unfavorable changes in exchange rates. There was also a $1.1 million net decline in training revenue for U.S. energy clients, which was partially offset by a $500,000 increase in training and technical services revenue for various other customers. The Performance Readiness Solutions segment provided $18.6 million of revenue, which was a $3.6 million or 16% decline over 2014, primarily due to a decline in ERP implementation services and a decrease in consulting and training services. The financial and insurance sector is our largest market sector comprising 21% of year-to-date revenue, up from 16% in 2014. The automotive sector remains our second largest sector and comprised 18% of revenue in the quarter, up from 14% in 2014. Revenue earnings from operations outside the United States represented 29% of our revenue, up from 23% in the nine months ended September 2014. We have a revenue concentration from a single financial services customer which accounted for 14% of our year-to-date 2015 revenue and a revenue concentration with an automotive customer which comprised 12% of our year-to-date revenue. Gross profit decreased in the third quarter by $2.1 million or 10%. The decrease in gross profit was largely due to a decline in the alternative fuels revenue and associated margin. There was also a $700,000 gross margin decrease due to a nonrecurring project completion bonus received in the third quarter of 2014. Both of these items occurred in the Professional and Technical Services segment. The revenue and margin decline in Performance Readiness Solutions segment also contributed to the decrease. As Scott mentioned, and not directly related to revenue, we experienced an $800,000 increase in our self-funded medical plan expenses compared to the third quarter of 2014, which impacted gross profit across all of our segments in the quarter. In addition, the decline in average exchange rates had a negative $300,000 impact on our reported gross profit during the third quarter. On a positive note, our Learning Solutions segment recorded a $1.4 million or 70% increase in gross profit, which partially offset the decreases. The gross margin percent decreased from 18.2% in the third quarter of 2014 to 16.6% this quarter. The decline in the gross margin percent is primarily due to the revenue declines discussed and the lower margins earned on the $6.3 million of new publication revenue in the Sandy segment. Learning Solutions gross margins increased in the quarter from 16.9% of revenue last year to 18.9% this year. SG&A increased by $400,000. SG&A cost included a $600,000 increase in labor and benefits expense and a $200,000 increase in IT infrastructure and other expenses primarily related to international expansion effort. These increases were partially offset by a $400,000 decline in the amortization expense due to certain intangible assets becoming fully amortized. During the quarter, we incurred $1.2 million of restructuring costs related to the cost savings initiative. These costs relate largely to severance expense associated with workforce reduction. We also recognized a $100,000 loss related to a change of the estimated earn-out payments and associated fair value of contingent consideration accrued for certain acquisitions, which resulted in a $700,000 expense increase over the gain recorded in the third quarter of 2014. Interest expense increased by approximately $200,000 in the quarter due to an increase in short term borrowings and long-term debt. Other income decreased $500,000 over the third quarter of 2014 due to an increase in the foreign currency losses which totaled $800,000 in the quarter. When combined with the $300,000 translation effect on recorded gross profit, the decline in exchange rates resulted in a $1.1 million decrease on pre-tax income in the quarter. Tax expense was $2.2 million in the quarter or a rate of 37.2% compared to $3.9 million or 34.9% in the third quarter of 2014. We recorded an income tax benefit of $600,000 in the third quarter of 2014 related to a domestic production deduction taken on our 2013 tax return which was filed in the third quarter of 2014. We are currently projecting a tax rate of 37.5% for the remainder of 2015. Third quarter net income was $3.7 million compared to $7.2 million in the third quarter of 2014. Third quarter earnings per share were $0.22 compared to $0.37 in the third quarter of 2014. The $1.1 million negative effect of foreign currency exchange rate and $1.2 million restructuring charge had a combined negative impact of $0.08 per share in the quarter. Moving on to the balance sheet, our cash balances were $13.6 million at September 30, 2015 compared to the $14.5 million on hand at the end of 2014. In 2015, we spent $6.5 million on share repurchases and $2.6 million on contingent consideration payment for a previously completed acquisition. We generated $9.5 million of cash flows from operations for the nine months ended September 30 and $6.4 million in the third quarter, compared to $16.7 million of cash provided from operations year-to-date September 2014. Cash flows from operations include year-to-date income of $12.5 million plus non-cash add-back to net income including depreciation and amortization of $6 million and non-cash compensation expense of $4.5 million, offset by a $13.5 million decrease in cash from changes in other operating items primarily due to an increase in unbilled revenue and decrease in billings in excess of costs. The fixed asset additions were $1.8 million year-to-date September 2015, down $500,000 from year-to-date 2014. We had total borrowings outstanding of $60.7 million at September 30 and have $31.5 million of available borrowings under our revolving credit facility. At the end of September, backlog was $247 million in comparison to $234 million at the end of December 2014 and $227 million at the end of the third quarter of 2014. Approximately 95% of the backlog will be recognized as revenue within the next 12 months. At this time, I will turn the call over to Doug who will discuss some operational highlights.

[Douglas E. Sharp:]

Thank you, Sharon. Hello everyone. Now setting aside for a moment the currency headwinds we discussed and the last market incentive to use LNG as a vehicle fuel as a result of lower oil prices, GP Strategies has had a busy and productive third quarter with our learning and development services. I'll start today with highlighting some recent recognition we had received within the training and talent management industry. We have received no less than nine awards from Brandon Hall, a learning and industry research analyst group. These are public awards that also recognize our customers as well as our collective achievements. We won awards for the Best Custom Content, Best Enterprise Sales Training and Best Advancement in Benefits Strategy for Computer Sciences Corporation, General Motors and The Boeing Company respectively. We have also won a Best Content award for our work with Blue Cross and Blue Shield and a Best Learning Team award for our work with Cargill. Four more to go. Best Compliance Training with Ameritox, Best New Hire Onboarding with Citibank and Best Innovative Leadership Development with Cigna. And finally the ninth award was in the talent management category for work with our pharma customer Eisai which this award was for the succession and career planning program that we supported them with. Our people, our processes and our technology combined with great customers resulted in these annual award-winning achievements, and perhaps more importantly create confidence in customers considering GP for new or additional services. This leads me to my next point. Continued organic growth requires sustainment of our work with existing customers by winning re-competition. It also requires expansions of services within our customer base and winning new customers as opportunities develop. This quarter we have been successful in all three areas. We won the re-competition of work with the Army Chemical Materials Organization, a $29.6 million contract over five years, which is allowing us to continue our great work in the Chemical Demilitarization Training Facility in Maryland. We have expanded our work with General Motors to include custom content development in support of their many sales initiatives. We expanded our services with one of our large financial customers in support of their tuition reimbursement program. And we are growing our work with an industrial conglomerate in the oil and gas space through the addition of several new projects which is leading us to pursue a larger master services type agreement. And finally on the expansion front, we have recently won work with a large luxury auto brand in China which we're pretty excited about. So I'm proud to announce and I will close with the following two examples of new customer wins, neither of which I can mention by name at this point. Both are multi-year [indiscernible] awards that center around our custom content development services and both awards leverage our global reach in the industry. One is with an international electric and gas company and the other is with an international food manufacturing with household brand [indiscernible] you would recognize. Hopefully this quick list gives you an understanding of our position and our brand in the corporate training space and the types of services and value we bring to our customers. Scott, I'll turn it back to you.

[Scott N. Greenberg:]

Thanks, Doug. One of the questions we've been getting asked recently is regards to global strategy and our global wins, and whether we could duplicate large outsourcings. While we haven't received a new large outsourcing, you could see though that our global initiative is starting to get multimillion dollar contracts. It has started in Q3 and you'll see the benefits to come. So Doug discussed three awards during his part of the presentation, the large automobile company in China, the food and beverage company and the other company in Europe. All three of them are multimillion dollar awards and all three of them have been won through our global initiative. So I still think that you'll see the benefit in years to come and you'll start seeing the benefit starting in Q4 of the global initiatives that we are going to take in. In addition, one of the other areas we're looking at is potentially bringing in more subcontractor work that we are doing with the upside to GP Strategies. As you all know, we built up our financial service sector expertise in a period of time and we ramped up very quickly. So there is certain revenue that we would hope to in-source in the near future, and we think that's a big thing. In addition, the Sandy Corporation, or Sandy Group now of GP Strategies, has locked in a significant amount of their revenue for the next five years. So as they win new awards, that should all be organic growth. So they've locked in the majority of their customers for a three to five year period which will firmly enhance their future growth as well. So the endpoint before I turn it over to questions, while our revenue grew organically by 5%, if you put back in currency and the LNG business being taken out, I think this is just a start to future organic growth and we look optimistic to the next quarter and future periods of the Company. Lastly, on the acquisition front, we announced last quarter that we have started looking at acquisitions, and the Company is very selective. We do have some deals we are looking at in the pipeline and hopefully we could get back to an acquisition strategy that has shown huge benefits in prior years of the business model. So with that, moderator, I'd like to turn it over to Q&A.

[Operator:]

[Operator Instructions] Our first question is from Alex Paris from Barrington Research. Please proceed.

[Alexander Paris:]

Couple of questions, first off with the restructuring, you implemented the actions that will lead you to $10 million of net cost savings. Largely severance was $1.2 million in the quarter. Should that be divided along the lines that we had talked last quarter, 90% to operations, 10% to SG&A?

[Scott N. Greenberg:]

For the severance, roughly that would be correct, yes.

[Alexander Paris:]

Okay. And then are there more severance costs that rolled into fourth quarter?

[Scott N. Greenberg:]

There will be some but the majority is already reflected.

[Alexander Paris:]

Okay. And then I think in the text of the press release you talked about we should start seeing the benefit of those cost reductions immediately in the fourth quarter. Is that accurate?

[Scott N. Greenberg:]

A lot of the reductions were made towards the latter part of the quarter. So the real cost savings you'll see will be in the Q4 and then ramping up to the Q1 where you should start seeing the full cost savings, but you will see significant cost savings in Q4.

[Alexander Paris:]

And then because these were people/salaries, would I expect that $10 million in the savings to be equally loaded through the four quarters of 2016, in other words $2.5 million a quarter, or is there some seasonality to it?

[Scott N. Greenberg:]

No, there shouldn't be much seasonality to it when you look at the numbers, but if we're looking at the Q4, we are looking at in excess of seven figures of cost savings but you obviously won't see the full $2.5 million roll into Q1.

[Alexander Paris:]

Okay, that makes sense. And then moving onto again the LNG business, that contract is now completely out, the revenues that came from that contract with that particular customer that's made for the tough comps, that's completely been anniversaried now, is that correct?

[Scott N. Greenberg:]

There is one small amount in Q4, not anywhere near the level. Sharon is double-checking but I believe the alternative fuels revenue was about $3.6 million in Q4.

[Sharon Esposito Mayer:]

It was, it is up, yes. And the revenue, Alex, related to that particular customer in Q4 of 2014 was $2.1 million.

[Alexander Paris:]

Okay, so there's still a little bit there yet.

[Scott N. Greenberg:]

Yes, but in Q3 of this year, we did over $1 million of revenue. So you're talking about a $2 million swing not the $10 million or $5 million or $7 million swings we've been experiencing in other quarters.

[Alexander Paris:]

Okay. So just to make sure I got that straight, Sharon, that particular customer was $2.1 million in the fourth quarter last year, $3.6 million overall in alternative energies, and the business is running at about $1 million a quarter now.

[Sharon Esposito Mayer:]

Yes. Okay, so Alex, just a little tweak to the numbers. Last year the alternative fuels revenue in Q4 was $3.7 million and that client contributed $2.1 million of revenue in Q4.

[Alexander Paris:]

So the $2.1 million is in that $3.7 million number?

[Scott N. Greenberg:]

That's correct.

[Sharon Esposito Mayer:]

That is correct, yes. And the alternative fuels revenue right now is running on average of about $1.5 million a quarter this year.

[Alexander Paris:]

Okay. And then with regard to the customer concentration of the large financial services customer, you said that was about 14% of year to date revenue this year?

[Sharon Esposito Mayer:]

That's correct.

[Alexander Paris:]

What was it in the same nine months last year?

[Sharon Esposito Mayer:]

Give me a minute [indiscernible].

[Alexander Paris:]

Okay. And while you're looking that up, a related question…

[Sharon Esposito Mayer:]

It was less than 10%, Alex, but we haven't disclosed the exact percentage but it was less than 10% for the nine months last year.

[Alexander Paris:]

All right, less than 10%. And then there are some opportunities within financial services, I think is what Scott was referring to when he said, there is the opportunity to in-source some stuff that was outsourced because that contract ramped up so quickly and it's such a large contract some of that business had to be farmed out to third parties, is that what you were saying?

[Scott N. Greenberg:]

That's flowing through all our financial service sectors, that being the case. Also we discussed in the past that we're starting to see new activity among our current clients in the financial service sector, and based upon preliminary discussions with those customers, we believe that those customers will have a nice ramp-up in 2016. So we typically get questions on have we hit the maximum at least with our current customer base in the financial services or are there additional opportunities, and what we're seeing now is that there could be significant additional opportunities in 2016 and we're actually starting to see them already.

[Alexander Paris:]

So on that point, there was additional revenue within those accounts in the financial services area based on these preliminary discussions, and then there is additional revenue to be had by in-sourcing some of the third-party stuff?

[Scott N. Greenberg:]

That's correct.

[Alexander Paris:]

Okay. The organic growth rate was 5% in each of the last couple of quarters, below your 8% targeted rate. Do you expect an increase to the organic growth rate in Q4 or more of the same?

[Scott N. Greenberg:]

We just started Q4, so right now the indications are that it would be an increase from the 5% under the same type of an analysis.

[Alexander Paris:]

And then maybe, all other things being equal, you would expect to get back to that targeted range next year in organic growth?

[Scott N. Greenberg:]

That's correct.

[Alexander Paris:]

Okay, great. That does me for now. I'll get back in the queue.

[Operator:]

We have a question from the line of Kevin Liu with B. Riley & Co. Please proceed.

[Kevin Liu:]

On the Learning Solutions side, you referenced improvement in gross margin there with revenues at similar levels to Q1. Just curious as to how you guys were able to derive those benefits and how much more opportunity for expansion you see as growth comes back in the coming quarters?

[Scott N. Greenberg:]

Kevin, that's a great question. We were very happy with the efficiencies we're getting in the Learning Solutions group. That's come from two reasons. One is, as we get runtime with some of our large financial service customers in addition to our other business, we're better to leverage people and personnel. We've also had in that group a nice change in mix. So you rather grow more but the mix has improved. We have [turned up] [ph] our larger margin contracts, quite a substantial change in the revenue base, particularly in the U.K. And then there was some cost cutting that also impacted the Learning Solutions group. Some of the cost cutting occurred slightly earlier than the other sectors and they got the benefit of that. So we're happy with that. We typically say, Kevin, that right now we have a 2-for-1 multiple on our current profitability to organic revenue growth. So conceptually, if we're able to grow the top line by 8%, we're typically able to, all things being equal, we're able to grow our pre-tax by 16%. The Learning Solutions exceeded that 16% overall in the quarter, which is a good sign, and we were happy with the performance.

[Sharon Esposito Mayer:]

And, Kevin, another thing in addition to the drivers that Scott mentioned is if you recall last year we still had a lot of investment going into the large contracts that we have with our financial services customer. And so that investment concluded in 2014. So when you are comparing the margins from 2014 to the first quarter of this year, that investment is no longer reflected in our quarterly results this year.

[Kevin Liu:]

Got it. And going back to the potential to in-source some revenues, any way you could quantify how much opportunity there might be for you to in-source? And then can you talk a little bit about what sort of margin improvement you would get from that? As I imagine, you are probably paying a bit more for the subcontractors.

[Scott N. Greenberg:]

Those subcontractors to the extent we are outsourcing the revenue is not going through our revenue now. So, conceptually, if we're able to bring in that revenue and in-source it as opposed to outsource it, that would be 100% incremental revenue to the Company. The number is substantial that we are currently outsourcing across the Company, not just in the financial services sector. So that is the goal of the Company, but it is a substantial number. If you look at the Company, it's historically significantly more than $10 million that we are outsourcing.

[Kevin Liu:]

That's helpful. And then just lastly, on the Performance Readiness Solutions group, I know it tends to be more project oriented so it can fluctuate from period to period, what are you seeing in terms of the pipeline or perhaps just given some work you've already received, what sort of trajectory should we expect? Are we going to continue to see declines year-over-year or do you expect that you can turn that back to growth in the relatively near future?

[Scott N. Greenberg:]

We expect two things. One is to return it to growth. They've been working on some of the customers like the financial services. That being said, some of their revenue that they do work, they do subcontract work for certain of the other groups, gets eliminated. So while it shows a bigger reduction in revenue, they are actually helping out some of the other organizations. But that being said, one of the things we were very cognizant about is, while we believe we could return that business' top line, what we wanted to make sure is that at least on the pre-tax or the operating profit, they would generate a higher profitability. And on a percentage basis, if you look at the groups, they had the most significant of the cost-cutting. So on a profitability basis, they should actually show the largest percentage increase in profitability based upon the cost-cutting.

[Kevin Liu:]

Got it. Thanks for taking the questions.

[Operator:]

Our next question is from Jeff Martin with ROTH Capital Partners. Please proceed.

[Jeff Martin:]

Scott, could you give us some insight into what kind of preparations are necessary to capture this outsourced revenue that you are looking at?

[Scott N. Greenberg:]

The preparations needed is to get-in in certain of the industries the people that have the certifications. A lot of the outsourcing that we do is due to regulatory requirements. And when we ramped up, we obviously then have the ability to get all the necessary people and requirements. So that's one of the key areas, to bring in the proper people with the necessary regulatory background in the different industries we participate in. Again, if you looked at the business, in one year we grew revenue by probably in the neighborhood of $60 million, $70 million and we opened up 13 offices to service our global customers, and we grew so rapidly that we didn't have the capability to do as much as we would have done on a slower growth type of trajectory. But now that we've accomplished a lot of things that we wanted to, we can now look at that area as a way to generate significant revenue.

[Jeff Martin:]

And where do you stand in terms of being prepared for that? Do you have those people in place today, is that a process that takes a couple of months, is it a new hiring process, what all is involved?

[Scott N. Greenberg:]

We are working on that, and I think you should have some very positive developments in the next two quarters. I would say, by our next quarter conference call, we could wrap-up or we could tell where we're currently at and what the additional potentials what we could bring in would be at.

[Jeff Martin:]

Okay, so we'll probably talk in about second quarter of 2016 when we start to see some of that contribution potentially?

[Scott N. Greenberg:]

No, I think you might see – you'll see some in the first quarter, but the substantial will probably be in the second.

[Jeff Martin:]

Okay, great. And then some of the new work you've been talking about with existing clients, is that more moving to international, particularly speaking to the financial services clients?

[Scott N. Greenberg:]

One, if you're talking about at the food and beverage award, we got because of our [indiscernible] international work. The power organization that Doug was talking about, they actually published the results of the bid and we won the technical ability and our highest score was in the global area. So the customers are noticing our ability to go global. The financial service award that Doug was talking about was a tuition reimbursement outsourcing and an add-on to our current work with them that has less to do with the global, but obviously the luxury car manufacturer in Asia was due to our global initiative. So I think that you're going to see more of our growth come by our global initiatives. If you're looking at our current customer base, we are currently dealing with 125 of the global 500 companies of the world, and other than maybe 10 or less have we really leveraged the global work with, and a lot of what you're seeing now is due to the global initiative and that's why we believe we're going to achieve better revenue growth in the near future.

[Jeff Martin:]

Okay, great. And then can you give us a look into what gross margins might look like next year? It sounds like they'll be expanding, but if you could give us either qualitatively or quantitatively an idea of where those might head?

[Scott N. Greenberg:]

We've always said, and this is our goal, it is that even with the LNG business we were doing 10.5% EBITDA margins, which would give you a slightly different gross margin, but about 10.5% EBITDA. And this year we've been running on a pro forma basis, if you take out the currencies, we've been running closer to 8.5%. The initial goal of the cost-cuttings was to go from that 8.5% run rate to the 10.5%. So that's the range of potential, is to try to capture a significant amount of that 2% decrease. While I'm not sure whether we'll get the whole 2%, we obviously think that there is the potential with the cost-cuttings and revenue growth to bring that back close to that level.

[Jeff Martin:]

Okay, great. Thanks for taking my questions.

[Operator:]

Our next question is from Ross Taylor with Somerset Capital. Please proceed.

[Ross Taylor:]

There has been a lot of talk about kind of near-term and specific fixes and the like to what's been going on, but I want to get to a little bit more of a strategic level. 2015 has been simply a bad year for the Company. You have missed earnings and revenues three consecutive quarters. The stock is down 31% for the year. It's actually retraced backwards trading around the price it was in the first half of 2013. So what do you guys think you have to do to get back to or kind of get your mojo back to where you can beat the street numbers on the top and bottom line? Is this a case where it's a failure of communication of what's going on or is it that you guys haven't gotten an effective handle on the changes that have been going on this year inside your businesses?

[Scott N. Greenberg:]

Ross, if you look at the historical growth of the Company, the Company went from $200 million and change in 2009, about $216 million, to over $500 million of revenue last year. So we're on a very strong growth trajectory so to speak. I think we reacted quickly to the downturn of our LNG business, and I believe – but that was substantial and it was even more substantial on the profitability side than it was on the revenue side. I think that if we could show the 8% organic growth again and the double-digit EPS growth from the current level, it won't take long to get our mojo back, but as you correctly have stated and said, the first three quarters were disappointing achieving that. I think we were getting some benefit in the stock from our success. What we are strategically doing is some of the things we announced on the call today and the prior call. When you look at our global initiative, we would basically set up our global organization, but it's been run by people in effect from even U.K. or the U.S., becoming local, going over to the different operations and helping out so to speak. As we mentioned in the past, we actually cut over $10 million of cost cutting and we have reinvested that with people to help grow our global areas. So you shouldn't take the cost-cutting as we don't believe we have the ability to grow the top line and we're just trying to get our operating margins back in shape, but not only did we do cost-cuttings to improve our operating margins but we're actually redeploying, are redeploying a few million dollars of costs into areas that we believe it's needed to grow. I think we'll get our mojo back when we'll start – we're able to demonstrate that our global wins that we've announced today will start showing increased revenue, more in the neighborhood of the organic growth rates that we've had in the past. So I think that our business model is now broken. However, it needed some revisions this year, which we believe we've made at this point, and hopefully we get back on track in the fourth quarter next year like we've been in the past 14 years.

[Ross Taylor:]

Okay, that gets me to my next question which is really more one for your Board, but also since you sit on the Board, for you as well. Why wouldn't the Company with regard to its share buyback program be substantially more aggressive this year? Last year you put in more than $80 million Dutch, it was less than 75% subscribed, and I think if I recall, right around $29 this year. Today the stock is down $23.5 this year. I listened to what you just said and what you've said kind of all along, and I would have to believe that you and your Board would feel that the outlook for the Company today is in spite of the stock price action brighter than it was a year ago at this time. And when you factor in the drop in the stock price, that you would therefore find it substantially more undervalued today than you did then. So I have to ask, I'm a little surprised by the lack of aggressiveness that you guys are showing at this time in redeploying capital to take up some of this stock that's being sold. I mean if you execute as you expect to execute, I would think you would be of the belief that the stock should move back into the 30s over the next 12 months, maybe even the mid-30s as you get your mojo back, and buying stock here at 23 or 25, even a higher price if you were to put back in a Dutch, would probably be a very effective use and would also help buy you time to get you through the tax laws selling season which is obviously part of what's going on with the stock price weakness of late.

[Scott N. Greenberg:]

Ross, that's a great question and something the Board discusses. If you looked at the stock during the year, it's really only been one quarter that the stock was down dramatically from prior periods, which was the last quarter we completed. So the question would be, what could we do along with the buyback in Q3? And when we talk about the buyback that occurred, the majority of the buyback that I announced earlier, all occurred in Q3 once the stock went to a lower level, and again 100% in sync with you, on what we believe the future of the Company is. So if you look at the buyback in Q3, that was $5.5 million in one quarter. So I think that the Board did think about it, we did think about it, and based upon the call today, we'll go back and discuss our strategy, but we did buy back $5.5 million of stock between, because we are in a blackout period for the month of July, so in the two months ended August and September we bought back $5.5 million of stock.

[Ross Taylor:]

And I do commend you for that. It just seems that you're getting an interesting opportunity here largely because of the substantial drop and the chance to take advantage of the tax laws. You and I have known each other for a decade, literally for a decade, and you know that I have a tremendous amount of confidence in you and in your Board to do the right thing. I think you guys have come a long way from when we first met. And I'm comfortable that you can execute operationally and I also am comfortable that you guys will execute strategically in the best interest of shareholders, but it is something I think that needs to be given serious thought because there is a real chance here to sweep up a lot of stock from people who might be selling for tax laws purposes. That would richly reward us, those of us who intend to be long-term holders.

[Scott N. Greenberg:]

I am not disagreeing with anything you said.

[Ross Taylor:]

Thank you.

[Operator:]

There are no further questions registered at this time.

[Scott N. Greenberg:]

Okay. Thanks for participating on the call. With everything you heard today, hopefully we'll have better and improved results to report on our next conference call. So thank you very much.

[Operator:]

Ladies and gentlemen, that concludes the call for today. We thank you for your participation and ask that you please disconnect your lines.