GP Strategies Corporation
Q4 2015 Earnings Call Transcript

Published: 25 Feb 2016

[Operator:]

Good morning. My name is Amanda and I will be your conference operator today for the GP Strategies’ Fourth Quarter 2015 Earnings Conference Call. [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’ fourth quarter 2015 earnings call. On the call today are Scott Greenberg, Chief Executive Officer; Douglas Sharp, President; and Sharon Esposito-Mayer, Chief Financial Officer. Before we begin, I would like to remind you that today’s comments will include forward-looking statements, which are subject to certain risks and uncertainties that could cause our actual results to be materially different from expectations. For a complete discussion of these risks, we encourage you to read our documents on file with the SEC, which are posted on the Investors section of our website at gpstrategies.com. A replay of this call will also be available on our website later today. And at this time, I would like to turn the call over to Scott.

[Scott Greenberg:]

Thanks, Ann. Good morning and welcome to our fourth quarter 2015 conference call. Today, we will follow our usual quarterly format. To initiate the call, I will provide a brief overview of the results of the fourth 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 will provide a final summary and then we will conclude with a Q&A session. This morning, before the market opened, GP Strategies announced its earnings for the fourth quarter of 2015. Our fourth quarter results showed the highest quarterly profit in 2015 and strong cash flow from operations. We achieved overall organic revenue growth despite the continued negative impact of foreign currency fluctuations and lower revenue in our alternative fuels business. The company used part of its strong cash flow from operations to continue with share buyback program. We are also looking for acquisitions returning to a strategy, which has contributed to GP Strategies’ growth in prior years. The fourth quarter highlight was that the company achieved diluted earnings per share of $0.30 per share, which was inclusive of $0.02 per share restructuring charges and litigation costs and approximately $0.01 per share of foreign currency transaction losses included in other expense. Pro forma for these items would have showed approximately $0.40 per share for the quarter. In addition, the change in gross profit due to currency also caused a $0.02 per share change from the fourth quarter of 2014. In the fourth quarter, the company achieved revenue of $126.4 million despite the reduction of $2.5 million from the alternative fuel groups and a decrease of approximately $2.6 million due to the unfavorable changes in foreign currency. Adjusting for these items, organic revenue growth was 5%. The fourth quarter was the first quarter in 2015 that showed organic revenue growth without pro forma adjustments. The previously announced cost reductions have also enabled us to begin investing in additional business leaders in some of our high potential international markets and launching new sales initiatives to enhance organic growth. In addition to affecting revenue in the fourth quarter of 2015, foreign currency fluctuations negatively impacted gross margin by approximately $0.5 million. Now, in regards to our share buyback program, in the fourth quarter, the company announced an additional share buyback program of $15 million and repurchased approximately 222,000 shares of GP Strategies’ stock in the open market. However, part of this share buyback program related to the old program, so we still had approximately $14 million remaining at December 31, 2015 under the new buyback program. In 2013 through 2015, we invested heavily in building our global reach and we anticipate seeing the returns of these investments in years to come. We added approximately 14 global offices to the company. Our revenue in the Asia-Pacific region is approaching $15 million, which is approximately 4x where it was just 5 years ago. We believe this continued investment will enable our company to execute on a global basis. The strategy will continue to be a differentiator for the company. 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 market. Next, I would like to talk about EBITDA, which is a big measurement for the company. EBITDA for the quarter was approximately $11.8 million. However, after adding back the restructuring charges, currency and loss on contingent consideration, it totaled approximately $12.8 million or approximately 10.1% of revenue. Some companies and analysts add-back non-cash compensation expense to EBITDA on a pro forma basis. We typically do not as far as our press release. These expenses for the quarter were approximately $1.5 million, resulting in adjusted pro forma EBITDA with these add-backs to approximately $14.3 million. And again, as we announced this morning, our cash flow for the quarter was approximately $60 million. We routinely get asked on the market about the massive training business, which is now estimated to be over $100 billion globally. Our largest competitive skill is the in-house company’s training departments. We understand that we are playing in a highly fragmented industry and we look forward to continued execution. On previous calls, we discussed initiatives to expand into the financial and insurance service sector. We started our initiative performing in this sector approximately 5 years ago and for 2015, our revenue from this sector was 21% of our total revenue. We were pleased to announce in January a 2-year extension with our largest financial service clients. With that being said, Sharon will now give a detailed financial presentation for the quarter.

[Sharon Esposito-Mayer:]

Thanks, Scott and good morning everyone. This morning, we reported fourth quarter revenue of $126.1 million, which represented a $1.2 million or 1% increase over the fourth quarter of 2015 revenue of $125.2 million. During the quarter, we experienced a $2.5 million reduction in revenue from our alternative fuels business due to the completion of several projects during 2014 and a $2.6 million reduction in revenue due to a decline in exchange rates compared to the average exchange rates during the fourth quarter of 2014. These decreases contributed to a 4% decline in revenue over the fourth quarter of 2014. Excluding these decreases, revenue increased 5% primarily due to strong revenue growth in our Sandy segment. Sandy’s fourth quarter revenue of $25.5 million represented an $8.2 million or 47% increase over the fourth quarter of 2014. This increase was largely due to an increase in publication revenue for an automotive customer. Fourth quarter 2015 publication revenue was $9.8 million or a $6.7 million increase over the fourth quarter of 2014 due to a new lower margin publication contract, which started in the second quarter of 2015. The remaining revenue increase was due to a drag in the right event that occurred in the fourth quarter of 2015 and an overall increase in automotive training revenue. We are projecting a total of $5.6 million of publication revenue in the first quarter of 2016, which includes $5 million of lower margin revenue related to the new awards. This compares to $300,000 of publication revenue in the first quarter of 2015 and $9.8 million of publication revenue in the fourth quarter of 2015. Revenue in the Learning Solutions segment decreased by $2.1 million or 4% over the fourth quarter of 2014. There was a slight net increase in e-learning and training outsourcing services in this segment that was offset by a $2.3 million decrease in revenue due to a decline in exchange rates compared to the fourth quarter of 2014. Professional & Technical Services revenue decreased $4.4 million or 13% largely due to the $2.5 million decline in alternative fuels revenue due to project completions in 2014, and a $500,000 decrease in revenue due to unfavorable changes in exchange rates. There was also a $1 million net decline in training revenue for U.S. energy and oil and gas clients and a $1.3 million decline in U.S. government revenue, primarily due to a non-recurring completion bonus in the fourth quarter of 2014. These decreases were partially offset by a $900,000 increase in training and technical services revenue from various other clients. The Performance Readiness Solutions segment provided $19.6 million of revenue in the quarter, which was a $500,000 or a 2% decline over the fourth quarter of 2014, primarily due to a decline in ERP implementation services and a decrease in consulting and training services. Revenue for 2015 totaled $490 million, which represented a 2% decline over 2014. Over 90% of our 2015 revenue was derived from clients that existed in the prior year and over 85% of our top 25 clients have used our services for 5 or more years. As Scott mentioned the financial and insurance sector now comprised 21% of our 2015 revenue, up from 18% in 2014. The automotive sector remains our second largest sector and comprised 19% of revenue in the quarter – I am sorry, 19% of revenue in 2015, up from 14% in 2014. Revenue earned from operations outside the United States represented 30% of revenue, up from 24% in 2014. We have a revenue concentration from a single financial services customer, which accounted for 14% of our 2015 revenue and a revenue concentration with an automotive customer, which comprised 12% of our 2015 revenue. Gross profit decreased in the fourth quarter by $1.5 million or 6%. The decrease in gross profit was largely due to a $1.4 million decline in gross profit in the Professional & Technical Services segment primarily due to the gross profit decreased related to the non-recurring project completion bonus received in the fourth quarter of 2014 and a decline in margin from reduced alternative fuels revenue. The revenue and margin decline in the Learning Solutions segment also contributed $900,000 of the decrease in gross profit, which included a $400,000 decline in gross profit from unfavorable changes in exchange rates. These decreases were partially offset by gross profit increases in the Sandy and Performance Readiness Solutions segment totaling approximately $700,000. The gross margin percent decreased from 19.1% in the fourth quarter of 2014 to 17.7% this quarter. The decline in the 2015 fourth quarter gross margin percentage primarily due to the lower margins earned on the $6.3 million of new publication revenue in the Sandy segment and a decline in higher margin alternative fuels revenue and a non-recurring 2014 project completion bonus in the Professional & Technical Services segment. SG&A decreased by $300,000. Fourth quarter 2015 expenses included $300,000 of litigation expenses and a $600,000 increase in labor and benefits expense over the fourth quarter of 2014. These decreases were partially offset by a net $300,000 decrease in other expenses primarily related to a decline in IT infrastructure cost, a $400,000 decrease in bad debt expense and a $500,000 decline in the amortization expense due to certain intangible assets becoming fully amortized. During the quarter, we incurred an additional $400,000 of restructuring cost, primarily related to severance expense associated with the cost savings initiative, which began in the third quarter of 2015. We also recognized a $100,000 loss related to the change in the estimated earn-out payments and associated fair value of contingent consideration accrued for certain acquisitions, consistent with the fourth quarter of 2014. Interest expense was flat at approximately $400,000 in the quarter. Other expense decreased $200,000 over the fourth quarter of 2014 due to a decrease in foreign currency losses, which totaled $400,000 in the quarter compared to $600,000 in the fourth quarter of 2014. Cost expense was $3.3 million in the quarter or a rate of 34.6% compared to $3.4 million or 31.2% in the fourth quarter of 2014. For the year, the 2015 tax rate was 36.6% compared to 36.7% in 2014. Approximately, 37% of our 2015 income was from operations outside the United States. We are currently projecting a tax rate of 37% for 2016. Fourth quarter net income was $6.3 million compared to $7.4 million in the fourth quarter of 2014. Fourth quarter earnings per share was $0.37 compared to $0.43 in the fourth quarter of ‘14. The $500,000 negative effect of foreign currency exchange rates on gross margin, the $400,000 of restructuring charges and $300,000 of litigation expense had a combined negative impact of $0.04 per share in the quarter. Moving on to some balance sheet highlights. Our cash balances were $21 million at December 31, 2015 compared to the $14.5 million on hand at the end of 2014. These cash balances are on deposits in jurisdictions outside of the U.S. In 2015, we have spent $11.6 million on share repurchases and $2.6 million on contingent consideration payments for previously completed acquisitions. We generated $60 million of cash flow from operations in the fourth quarter and a total of $25.6 million of cash flow for the year compared to $31 million of cash flow provided from operations in 2014. 2015 cash flow from operations included income of $18.8 million, plus non-cash add-backs to net income, including depreciation and amortization of $7.9 million, non-cash compensation expense of $6.1 million offset by a $7.2 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 cost. 2015 fixed asset additions were $2.4 million, down $400,000 from 2014. We generated free cash flow of $23.2 million in 2015 compared to $28.2 million in 2014. With total borrowings outstanding of $58.5 million at December 31 and have $29.3 million of availability borrowings under our revolving credit facility at the end of 2015. At the end of December, backlog was $239 million in comparison to $234 million at the end of December of 2014. Approximately, 95% of the backlog will be recognized this revenue within the next 12 months. At this time, I will turn the call over to Doug who will discuss some operational highlights.

[Douglas Sharp:]

Thank you, Sharon and hello everyone. Finally, growth in our core business has overcome our strong performance in 2014’s alternative fuel projects, which has led to a net quarter-over-quarter growth even when considering our currency headwind. Much of our growth in the quarter, as Sharon mentioned, was through our Sandy automotive segment, which also benefited from the additional content development work we secured from one of our large customers early in the quarter as was mentioned on our last call. However, I am also pleased to report two additional contract wins in the automotive segment, one with a European luxury OEM involving the development of global warranty and fixed operation stream, similar to what we do them for them in the U.S. And the second, a multimillion dollar multi-year award with a major Korean OEM to prepare and deliver retail training to their dealerships. This is a 1-year contract with a 4-year option period based on performance. In our Learning Solutions group likely our biggest news and news mentioned by Scott is HSBC’s recent decision to award GP two follow-on contract years beginning in July of this year. We consider this significant not only because of its size, but because our investment in building global enterprise wide learning solutions on lines with both theirs and our growth strategies. Said differently, the learning and talent development of HSBC’s people is paramount to their future. Building the solutions to execute that strategy is paramount to our platform from which we are to grow our business as well. On that note, we have a number of opportunities in the pipeline, two of which are very near signature and others are in the second and third round of procurement. One of the deals we have signatures is with a large aerospace, defense contractor, one of their divisions in the U.S. and the other is with the energy company predominantly in UK and U.S. Both are multi-year contracts where we were able to leverage extensive experience in content development and learning and administration as well as our experience in the aerospace and energy markets. Finally, in our Performance Engineering Group whose signature product is [indiscernible] Pro, which is used in power plants to share maximum availability, capacity and efficiency has seen an uptick in awards. We recently have been awarded pilot projects in system mine engagements with the electric power generators in Asia, Europe, the Caribbean as well as across North America. And with your involvements, I will conclude with one small, but important win. We sold leading with inclusion to one of our Middle Eastern customers. This product of course addresses leaders becoming more inclusive as they manage more diverse teams and serve more diverse clients. Last year, we formed a partnership with Catalyst, a leading non-profit with a mission to accelerate progress of women in the workplace. With Catalyst, we developed a series of inclusion modules, which we are now ready for market – which are now ready for market and to the benefit certainly of our customers to Catalyst and GP Strategies. So with that news, I will turn it back to Scott.

[Scott Greenberg:]

Thank you, Doug. I am very pleased about Doug’s report. As you can hear from it, a lot more global activity with wins of multi-million dollar contracts in the recent 30-day period, so we are starting the year at least ending the first quarter with some very significant awards and that’s pretty exciting news. These outsourcings tend to be larger that the size of our large financial service contract we have, these are multi-million dollar opportunities, which is something that we do not experience as often until we build out our global structure and now we are starting to finally see the benefits of that. Next, I would like to talk about is the acquisitions and I briefly mentioned that during the discussion, but I am also pleased to report we are in the final stages of completing in each acquisition in our skills funding arena, so hopefully we will have good news to report on that in the next 30-day period, but we have started the flow of activity. This was, obviously enhanced by the tremendous amount of cash we had generated in Q4 and our feeling about the company, so that’s good news as well. But at the same time, we did have enough resources to buyback stock, so we announced the buyback in the fourth quarter. So if you add the Dutch Auction that we did, plus the buyback, we are well in excess of buying back $70 million of stock, returning capital and free cash to our shareholders that way. As far as in the future, we have investor conferences coming up, so hopefully we get to see a lot of you. We will be at the ROTH Conference in the next few weeks, followed by B. Riley and Barrington Research. And all three of those companies research on GP Strategies, so we hope to see a lot of you there. With that being said, I would like to turn it over to Q&A. And so moderator, we can open up to Q&A section. Thank you very much.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from the line of Alex Paris from Barrington Research. Please proceed with your question.

[Alex Paris:]

Good morning everyone.

[Scott Greenberg:]

Good morning Alex.

[Sharon Esposito-Mayer:]

Good morning.

[Alex Paris:]

Congratulations on the strong quarter here in the fourth quarter. After missing my estimates the first three quarters of the year and that’s reflected in the stock price, it looks like we are back on track. I have a couple of questions, cost cutting, during the third quarter, you began on a program to take $10 million out of net costs, my question is – and there were some associated severance for that in both Q3 and Q4, is the severance behind us – are the cost cuts fully implemented and did you get a full quarterly benefit from those cost cuts here in the fourth quarter or is it going to ramp over time?

[Sharon Esposito-Mayer:]

Yes. So on the cost cuts are primarily behind us. There may be a couple of additional cost cuttings that we undertake that’s just normal course of the business in 2016. I think you saw probably most of the benefit of the cost-cutting take place in the fourth quarter as the majority of the cost-cutting efforts were complete by the end of Q3.

[Alex Paris:]

Okay, good. And then should I – so you are taking net $10 million out of operating expenses, is that just kind of straight lined across four quarters $2.5 million a quarter?

[Scott Greenberg:]

Except for typically we are somewhat seasonal in nature. So I would expect when you look at the numbers, there will be more in Q2 through Q4 due to the seasonality of our numbers to begin within Q1.

[Alex Paris:]

Okay, great. And then...

[Sharon Esposito-Mayer:]

So just said a little differently, the costs are renewed Q1 is usually our weakest quarter from a revenue perspective, it’s January our clients are still kind of coming out of the gate for the year. So with Q1 revenues typically being down, that will have some impact on margins, so you may not see the full effect of the cost-cutting in Q1, but should see it through the remainder of the year.

[Alex Paris:]

Okay, good. Thanks. And then moving on, there is an opportunity in 2016 as you talked about on previous conference calls to in source some of the business that you outsourced to ramp up on HSBC, perhaps other contracts, because they were so rapidly increasing your hired contractors to help you fulfill those contracts. There is the opportunity to bring some of the in-house now that you ramped up and you build out, can you sort of give us an idea on what that opportunity could be in terms of revenue in 2016, are you going to pull back $10 million in revenue that’s not currently being recognized in revenue or is it more like $5 million, just some sort of ballpark idea will be great?

[Scott Greenberg:]

The opportunity is pretty significant. As far as revenue in all our financial services, customers that we are currently not doing in-house, I think it’s too early to predict that. We are working on that now. So I will have more to say in the – by the second quarter earnings call, but the potential is – would be on the higher side. But that doesn’t mean we get it all at once, but I believe the potential could be on the higher side.

[Alex Paris:]

But based on your response there, we probably wouldn’t see that bump up until the second half?

[Scott Greenberg:]

Second – you won’t see until at least the second quarter, but probably most of it in the second half of the year.

[Alex Paris:]

Okay, good. Thanks. And then just a couple of bookkeeping questions for share and D&A was $7.8 million in 2015, what are you budgeting for 2016. And then same for CapEx, CapEx was $2.4 million, what are you budgeting for ‘16?

[Sharon Esposito-Mayer:]

Sure. I would expect the depreciation and the amortization for ‘16 to come down a little bit, probably be closer to $7.3 million because we will have additional declines in our amortization expense in ‘16. And as far as CapEx, I would go with about $2.5 million, which is pretty close to where we are running this year.

[Alex Paris:]

Okay. And then I guess, last one I just thought, non-cash comp, which was $6.1 million I think you said for 2015, similar levels for 2016 then?

[Sharon Esposito-Mayer:]

Yes. I think maybe just a little bit higher, by maybe just a couple $100,000, but that’s probably – I can’t imagine that will be far about where we are this year.

[Alex Paris:]

Thank you. I will go back into the queue.

[Scott Greenberg:]

Thanks, Alex.

[Operator:]

Thank you. And our next question comes from the line of Jeff Martin from ROTH Capital Partners. Please proceed with your question.

[Jeff Martin:]

Thanks. Good morning, guys.

[Scott Greenberg:]

Hi, Jeff.

[Jeff Martin:]

Hi, Scott. Hi, Sharon and Doug. I know you don’t provide specific guidance, but with the contracts wins or imminent wins that you spoke off on the call with Q4 ex-currency being up organically and how do you feel about 2016 in terms of [indiscernible], but should we expect that typical kind of mid single-digit organic growth do you feel like businesses got easier comps this year, are there any big contracts that we should consider that happen in ‘15 that might not be happening in ‘16 when we are building our updates here?

[Scott Greenberg:]

Well, on the good news side, there aren’t any type of significant contracts going into 2016 that we did not have in 2015. One of the things we have just been running the exercise with is our recurring revenue stream. And if you look at our large automotive companies, our large financial services, our skills funding, our government organization, the good news, Jeff, is probably 90% of our revenue is from customers we have had in the prior year and a big chunk of that is recurring. So, I think we are starting the year with a very strong recurring revenue stream. As far as predicting organic revenue growth, we typically say that we hope to grow long-term in 7%, 6%, 8% in the high single-digits. We obviously did not accomplish that in 2015. If you take our currency, we look closer to 5%. I could give you a better idea in the next 30 or 60 days when we have our next call, because we do have a lot in the pipeline right now, as you heard Doug say. So, in addition to some of the deals Doug has spoken about, we have a few others. So, I think based upon the pipeline, we feel very optimistic, but I think we could give more clarity by next quarter, but there is a very strong amount of bids going on and that’s exciting news. So overall, we are feeling optimistic.

[Jeff Martin:]

Okay. You mentioned quite a few of those potential wins are in the energy sector, could you be more specific as to what types of work that is and if you feel that is sensitive to current energy prices?

[Scott Greenberg:]

Well, one of the things that we do in the energy sector is we have software and training that help power plants measure efficiencies, measure vibration analysis, measure talent recognition as well. And that software actually – and products and training we do actually creates more efficiency to them and save the money. So, I think that software and the training around that has been getting a very good response and that’s what Doug is talking about as far as our additional sales. And the good news about software products and that type of training is it’s probably up there with some of our higher margin business that we have in the company. And in addition, outside of that, last year in Q4, we had a very strong quarter in our leadership training and some of the things that we have in the pipeline while it hasn’t closed now is in regards to our leadership training. One advantage we have in this area is we are already dealing with a 120 plus of the global 500 customers in the world and they all require this service. So, we are making a major push into our core selling globally on this initiative. And I think that we are getting opportunities. Some of them have the large – some of the larger ones have not closed yet. So, I don’t want to predict that, but we are seeing some – a lot of activity in this area as well.

[Jeff Martin:]

Okay. And then do you expect to grow within your largest financial services client this year?

[Scott Greenberg:]

Yes.

[Jeff Martin:]

Okay, great. Thanks and good luck.

[Scott Greenberg:]

That’s the easiest – that’s probably easy answer for us. So, the answer is yes.

[Jeff Martin:]

Great to hear. Okay, thanks guys.

[Scott Greenberg:]

Yes.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from the line of Kevin Liu from B. Riley & Company. Please proceed with your question.

[Kevin Liu:]

Hi, good morning. So, it sounds like there is a lot of RSP activity going on right now. Could you talk a little bit about your expectations for how much of your growth this year comes from signing up some of these newer outsourcing deals versus what you expect out of your existing customer base?

[Scott Greenberg:]

Well, some of these new outsourcing deals are extensions of our existing customer base. But typically, if you look at our model in the past, about half of our growth has really been from current customers and about half of our growth is typically from new opportunities. That being said, it could be skewed if we have a major upturn in the financial service sector with our current customers. So, that’s the only thing that I could say in addition to our historical, but other than that, you could typically say it’s about 50-50.

[Kevin Liu:]

Got it. And I know Q1 is typically kind of the low point for your revenues for the full year, just getting some of the macro volatility that’s been out there to start the year, particularly in some of the international areas where you hope to see more growth. I am just wondering if you can comment on if you have seen that affect kind of project starts at the beginning of the year and then kind of the urgency with which people are moving to close deals?

[Scott Greenberg:]

Well, typically and the reason Q1 impacts us this way is after fourth quarter, which is the strongest quarter in the training space for us. Typically, the January, they are taking off, it’s a slower ramp up and then we ramp up in February, March and the rest of the year, and that coincides for the activity we reported on the call today through Doug’s presentation. So, that being said, when we go on the global, because I know there is always concern when you look at Asia-Pac. The good news is we do a lot of financial service area and that’s regulatory and compliance driven. So, that work continues. We also have worked with a large automotive company. It’s a German luxury brand and they are introducing three new vehicles in the Chinese market in 2016. So, we anticipate seeing an upturn because of that. And one of the things that is now happening is due to our success with the automotive companies training their people in North America, we are seeing our first major opportunity in Asia-Pac to deliver training for our North American supplier in an Asia-Pac country. In the past, we have done jobs for our North American customers, but they have been more one-offs in Asia-Pac and this would be our first major opportunity that we are looking at. So, we are pretty excited about that. Again, the presentation, the way they roll it out, we are having our presentation there I believe in the next week or two. So, there is a lot going on that’s going to impact the rest of the year, but fortunately, there is a lot of positive activity right now.

[Kevin Liu:]

Great. And maybe just one for Sharon, obviously FX played a big role in terms of being a headwind in ‘15. As we move into ‘16 right now, I think the pound which is one of your more important exposures continue to weaken versus the dollar, just wondering what kind of the currency headwind coming into the year is on the overall growth rate and if you could just maybe comment qualitatively on whether you expect organic growth on a constant currency basis to get back towards historical norms?

[Sharon Esposito-Mayer:]

Yes. I actually did a quick look at that. And if I just look at revenues being consistent in the first quarter of ‘16 compared to where they were in the first quarter of ‘15 from just our five largest currencies, we will be facing about a $2 million reduction in revenue quarter-over-quarter just because of the foreign currency headwinds and those currencies continue to erode a bit. I mean, we are not done with the quarter yet. So, there could be some improvement there. But just based on where we are seeing exchange rates at right now that is what we would be facing. So, we would certainly still be able – we still hope to show organic growth even with the currency headwinds that we are looking at as we go through 2016.

[Kevin Liu:]

Great. That’s helpful.

[Scott Greenberg:]

Kevin, I think if you look at the currencies last year, they have started higher and then they went down during the year. So obviously, the first quarter is going to be our hardest compound currency.

[Kevin Liu:]

Yes, understood. Congrats again on a strong Q4 and good luck this year.

[Scott Greenberg:]

Thanks, Kevin.

[Operator:]

Thank you. And our next question comes from the line of Gary Bragar from NelsonHall. Please proceed with your question.

[Gary Bragar:]

Yes. Hi everybody. And this question is probably more for Doug and congratulations everybody. As Doug, you had mentioned the renewal or extension with HSBC for 2 years and that was announced in January, so I just have two questions, but the first is within regards to the HSBC, I remember last year I think it was mid-year around June reading that they were reducing headcount, reducing costs, so I mean that’s great, that obviously you are proving value in the renewal, but I was just curious in the renewal just an indication is that roughly the same size contract, the extension is, say in the prior 2 years or is that smaller because less headcount or said increasing because of more services and the expansion of countries?

[Douglas Sharp:]

Yes. So as Scott mentioned, we expect that account to grow in 2016. The demand for training is driven by a fair amount by the regulations and the regulators that they have to deal with and combined with the growth aspects that they want to add on some of their business – lines of business as well. So training in the other workforce is becoming paramount to their ability to recognize two things. One is to get the growth that they are looking for in the certain lines of business that comes down to people and down to the – but also the huge regulatory compliance is still steady – that are still overshadowing them and likely will be for the next couple of years. So the headcount that we are talking about and the reductions is not affecting our business at all with that.

[Gary Bragar:]

Excellent. Yes, glad to hear it. And the second question is just you had mentioned in your remarks within Sandy two contracts, one a multi-million Korean OEM, one with 4-year option, that’s great and the other you mentioned that there was another one that was European luxury OEM, are you able to indicate which country that’s in and dollar amount?

[Douglas Sharp:]

No. I mean, the luxury brand is coming out of the UK, but I won’t be able to share the dollar amount and neither opportunity at this point.

[Gary Bragar:]

Okay, that’s fine. Alright, thanks very much, Doug. Appreciate it.

[Douglas Sharp:]

Okay. No problems, Gary.

[Operator:]

Thank you. [Operator Instructions] And we have no further questions at this time.

[Scott Greenberg:]

Thank you, Moderator. It’s nice to end the year on a good note. And we are pretty excited and optimistic about 2016 and beyond. You have heard a lot of new potential from Doug, Sharon and myself today. We look forward to seeing you at the conferences. And we are here if you have any questions. So thanks for participating on our call. Have a good day.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. I ask that you please disconnect your lines.