GP Strategies Corporation
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good morning, my name is [Nicki] and I will be your conference operator today for the GP Strategies Second Quarter 2013 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's instructions). As a reminder, this call is being recorded. Thank you. I'll now turn the call over to Sharon Esposito-Mayer, Chief Financial Officer. Please go ahead.

[Sharon Esposito-Mayer:]

Thank you. Good morning and welcome to GP Strategies second quarter 2013 earnings call. On the call with me today are Scott Greenberg, Chief Executive Officer and Doug Sharp, President. 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'd like to turn the call over to Scott.

[Scott N. Greenberg:]

Good morning. Thanks, Sharon. And welcome to our second quarter 2013 conference call. Today, we will follow our usual quarterly format, in initiating the call; I'll provide a brief overview of the result for the second quarter. Then Sharon will present an in-depth financial analysis of our quarter. Doug will give some key updates on our recent major contract awards, which have resulted in a dramatic increase in the Company's backlog. After Doug’s presentation, I'll focus on our acquisition strategy, future vision, and the Company's plan for long-term growth. And then we'll conclude with Q&A session. As you saw today, while the second quarter of 2013 did not show improved operating performance, it was a transformational quarter for the Company. The major award from HSBC and other significant contract awards have placed the Company in a strong position for future growth. Our backlog increased to a record amount of approximately $244 million as of June 30, 2013, which compares to a $197 million at June 30, 2012 or an increase of approximately 24%. The thing to realize is our recently announced HSBC contracts is only reflective for backlog of approximately $6 million. We are pleased with the success that will having and diversifying our business internationally and additionally have received major awards in our energy services group LNG operations that Doug will talk about shortly. While the Company does not give out formal guidance on our quarterly conference call we do typically comment on trend impacting both short-term and long-term operating performance. Due to the seasonality of our business, the third quarter of 2012 generated less revenue and the second quarter of 2012, which was $97.7 million versus $102.3 million, so that was a downturn in the quarter. However based upon our view of our operating groups and current backlog we believe that this will not occur in the third quarter of 2013, and we expect to show a revenue increase compared to the $104.9 million of revenue achieved in the second quarter of 2013. So we are reversing the seasonality that typically applies. It should be noted that revenue for the third quarter will only minimally be impacted by a major award from HSBC announced in July of 2013. We believe when fully implemented, HSBC will become GP Strategies' largest customer. So basically, the revenue increase in Q3 is coming from other areas. In the second quarter of 2013, GP Strategies’ reported EBITDA of $10.6 million and earnings per share $0.27 per share. Due to the two recently-announced acquisitions Prospero Learning Solutions and Learning Engineering and HSBC's contract and also other legal projects the Company spent in-excess of $500,000 in outside legal expense for the quarter. In addition there was a substantial diversion of key personnel working on the HSBC contract that we believe had an impact on the operating results for the quarter, which will impact ongoing operations in Q3 and beyond. Looking at the trailing 12-month period, our reported EBITDA was approximately $43 million or $2.23 per share on a fully diluted basis. Despite our acquisition in the quarter our balance sheet remains strong. At June 30, the Company had cash balances of approximately $5.2 million and short-term borrowings of approximately $6.7 million, so net negative of $1.5 million. We typically generate substantial cash in the second half of the year. So we continue to maintain significant liquidity at the end of the second quarter. While the training-outsourcing market is highly fragmented we believe we have the ability to grow, and the recent win of HSBC clearly states our position as one of the leaders. We believe our key differentiators are strong technical expertise, our global reach and our cost-effective solutions. This combination is really the key to our success. On our previous calls, we discussed our key initiative to expand in the financial service sector. With the major HSBC award this initiative continues to be successful. The Company anticipates by the end of 2014, we will have at least 2 of our top 15 customers from the financial services sector. In addition the HSBC Doug will discuss additional long-term contracts that we've just received from numerous customers. This is extremely important to GP Strategies, as over 90% of our revenue is typically generated from our current customer base. Since 2006 we made over 20 acquisitions and we are continuing to see significantly more cross-selling opportunities. We have made these acquisitions predominantly for the cash flow generates from operation. In the future we see expanding leadership training, e-learning, global delivery, and major outsourcing such as HSBC to grow the Company going forward. Our recent major win clearly demonstrates we're on the right path. With that being said, I would like to turn the call over to Sharon, who will give a detail financial presentation for the quarter.

[Sharon Esposito-Mayer:]

Thanks Scot. We reported second quarter revenue of $104.9 million or 3% growth over the second quarter of 2012. Revenue in the Learning Solution segment increased $8.4 million or 23% in the quarter. The BlessingWhite acquisition completed on October 1st, 2012 contributed $3.7 million of revenue in the quarter. And the Ascensus acquisition completed June 29, 2012 contributed $1.6 million of revenue. The recently completed Lorien acquisition on June 12 contributed $1 million of revenue and the Prospero acquisition completed on June 1, contributed $500,000 of revenue. Excluding the revenue provided by the acquisition revenue in the Learning Solution segment increased $1.6 million or 4% in the second, primarily due to an increasing revenue from new and existing U.S. e-learning, content development and training outsourcing clients. Revenue in the energy segment also increased in the quarter by $1.3 million or 15%. The Rovsing acquisition, completed in September of 2013, contributed $700,000 of the increase in the quarter. The remaining $600,000 or 7% revenue increase is due to an increase an alternative fuel projects and EtaPRO Software sales as a service. The increase in Learning Solutions and Energy were partially offset by a declining other segments. Revenue in the Sandy segment decreased by $700,000 or 4%. The decrease is primarily do to $1.8 million decline and automotive training driven largely by $1.4 million non-recurring 2012 launch event for a large auto customer. The decrease was partially offset by a $1.1 million increase in publications and [dropbox] revenue. Sandy second quarter results included publication revenue of approximately $3.2 million. We are projecting 400,000 of publication revenue in the third quarter of 2013 consistent with the third quarter of 2012. There was $4 million or 19% revenue decline in the professional and technical services segment. The second quarter revenue decrease within the segment are due to $1.2 million decrease in Homeland Security and environmental remediation services, due to contract concluding, a $1.1 million decline in technical services for a pharmaceutical client, due to a project completion; a $1 million decrease and government e-learning services and $700,000 decrease in various other training and consulting services. Revenue in the Performance Readiness Solution segment decreased in the quarter by $2.3 million or 15%. The decrease in the revenue is primarily due to $1.2 million decline in system implementation training due to project completion and a $1.1 million and sales enablement and training development for various through. Year-to-date revenue increased by $10.4 million or 5%. The automotive sectors comprise 17% of revenue consistent with the six months ended June 2012. And the U.S. government remains our second largest market sector comprising 10% of revenue in 2013 down from 13% in 2012. The financial services sector continues to grow and now comprises 9% of revenue up from 6% a year ago. General Motors remains our largest clients, and comprised approximately 9% of revenue in the second quarter of this year. Gross profit decrease in the second quarter by $600,000 or 3% the acquisition contributed $400,000 or 6% of growth profit in the quarter and $7.4 million of revenue generated by acquisitions. We experienced a 1.1% decline in gross profit as a percentage of revenue in the quarter. The acquisition margin is accounting for 0.9% of decline in gross profit as a percentage of revenue. Operating profit decline $1.4 million or 14% due to the $600,000 decline in gross margin and it $800,000 increase in SG&A. The main drivers for the increase in SG&A are a $400,000 increase in labor-and-benefits expense, and $200,000 increase in amortization expenses related to the acquisition that were completed in 2012 and 2013. During the quarter we also recorded $45,000 gain related to a change in the estimated earn-outs payment and associated fair-value of contingent consideration accrued for certain acquisition, which compared to $31,000 loss recorded in the second quarter of 2012. We recorded 3.3 million of tax expenses in the quarter. For the tax rate for the second quarter of 2013 was 38.9% compared to 40% in the second quarter of 2012. We are currently projecting a tax rate of 39.2% for the remainder 2013. With a larger portion of our 2013 income expected to be owned in lower tax foreign jurisdiction, which is the primary reason for the projected decline in the rate over 2012. Second quarter net income decline by $700,000 or 12% over the second quarter of 2012, second quarter earnings per share were $0.27 or $0.04 decrease over the second quarter of 2012. Year to date earnings per share was $0.53 down $0.01 from year-to-date June of 2012. Moving on to a couple balance sheet highlight we recorded tax of $5.2 million and borrowing outstandings at $6.8 million as of June 30, 2013. This compared to $7.8 million our cash on hand at December 31, and no borrowings outstanding. As of today, our borrowings outstanding are down to approximately $1.8 million. During the year we spent $1 million on contingent consideration payments for acquisition previously completed $500,000 on share repurchases in the first quarter and approximately $13.5 million on acquisitions in the second quarter of this year net of cash required. We generated $5.5 million of cash flows and operation year-to-date which will comprises at year-to-date income of $10.2 million plus non-cash add-backs to net income including depreciation and amortization of $4 million. Non-cash compensation expenses of $1.9 million offset by a $300,000 change in deferred income taxes and a $300,000 gain on contingent consideration. In addition, there was a $10 million decrease in cash from changes in other operating item. As Scott mentioned backlog at the end of March was $244 million compared to a $197 million at the end of June 2012 representing a $47 million increase in year-over-year backlog. That concludes the overview of the financials. So I will turn the call over to Doug, at this time.

[Douglas E. Sharp:]

Thank you, Sharon. Again the fundamental supporting our business in Learning and Development remain strong. Our customers continue to recognize the importance of knowledge transfer and putting knowledge to work to improve sales, meet regulatory requirements and improved performance. The platform we've been building for learning development services and enriched technical capabilities we have been investing in has paid off with some significant second quarter wins. Giving us a healthy outlook for the near-term, and the competitive strength of expanding capability and global reach for the long view. Our growth strategy was partially founded on acquisitions that provide geographic presence, strategic capability, as well as support our own. Two recent acquisitions that meet these objectives are Prospero out of Montreal and Lorien, with offices in England and Poland. Prospero launches our content-development and delivery capability in Canada and Lorien brings us additional engineering services while expanding our resume in the food and beverage industry. Both have blue-chip customers, giving us an additional cross-selling ability. Of course, as Scott mentioned, the big news for the quarter was our new contract with HSBC. On our last call, I mentioned we were selected for a holistic global outsourcing and learning development. In early July we were able to name the customer HSBC one of the top International banks with 260,000 employees globally. I thought I'd take a few minutes and add a little more detail to this win. In August last year HSBC invited GP Strategies to provide information on our ability to supported global initiative for employee learning and development. Increased regulation competition led HSBC to explore a more centralized model for learning. Proposals and presentations were filed by a balanced selection and due-diligence process. After several months to included with HSBC or in GP Strategies in national services integration contract. So, what are we doing for HSBC? Under the MSA we are currently performing transition and transformation work which will form the basis of us providing centralized as well as regional and country level services. Beginning late this year, and ramping up in 2014, we expect to be providing substantial learning and development services for HSBC in approximately 18 countries. These services are generally in one of three work streams. The first is management services including performance consulting, training coordination, program managers, and vendor management. The second is content-design services. These services along with HSBC's academies, which in turn align with their global volunteer business in the third work stream is learning and delivery services, including instructors and various support. As Scott mentioned, once fully executed, this contract and customers are expected to become our largest in the Company. Other significant wins that expected to pick up in Q3 and through 2014 and beyond included global training administrative contract with one of the largest industrial-manufacturing services companies in the world. I mentioned this one on our last call. The expected work is twice what we initially thought and approximately $5 million a year for three year and is apparently only the first part of a larger plan to centralize more of their global learning requirements in the future. We also recently won an 18 months contract with the State of Maryland health benefit Exchange organization. We are to develop e-learning and instructor-led content and deliver training to a large number of state employees and others responsible for the execution of Maryland’s new healthcare benefits program. Again Maryland is one of first states to start to initiate the new healthcare benefit regulations. The contract size is approximately $5.7 million. And currently, our investment in LNG liquid natural gas engineering and facility capability over the past 12 months has proven successful with our largest win today. We were recently awarded contracts for the design and construction of over a dozen LNG fueling stations for one of the largest parcel deliver companies in the United States. As Scott mentioned, these wins are certainly expected to contribute to our financial performance in the quarters-to-come. But perhaps more importantly, these win to band with our recent acquisitions continue to build our global capability in that I believe will create greater separation for us in the marketplace. With that I will turn it back to Scott.

[Scott N. Greenberg:]

Thank you, Doug. Doug is calling from Europe, because he's obviously working on HSBC as we speak. So hopefully everyone could hear him. But to repeat one or two things that Doug mentioned and the first is our larger LNG win or wins to build a dozen refueling stations. We've talked about LNG in the past. The LNG group was running between $8 million and $10 million a year in revenue. Last year had a slight downturn and was a little less. Based upon these wins we believe that our LNG operations as the ability to triple its revenue in the next 12 month period. So that’s going to have major implication on GP Strategies results going forward. In addition, Doug mentioned HSBC, HSBC is a huge opportunity for GP, and the numbers we provided for the next quarter do not really reflect the potential impact of HSBC going forward. The thing to realize about the HSBC win is this is, in effect, a global partnership with HSBC. One that's unique in the training industry. We believe we can market this, once we're successful, as a new product line for GP Strategies and create an enormous opportunity. So we’re very excited above that and some of the other things that Doug discussed. So what you will see going forward is larger opportunities to GP Strategies, but some of these larger opportunities take longer to close and that’s why we did not see the increase in revenue as we’d anticipated in the second quarter. Going on to our acquisition strategy we have been successful with our acquisition strategy over the years they have highly accretive to earnings per share. Well in addition, the acquisition strategy by getting the global reach and the diversity of services it is really separate due to strategies and this highly fragmented industry. So that’s enabling to win the large partnerships like HSBC and some of the other financial institutions and we look forward to continuing on this path. So in conclusion before I turn it over to Q&A the long-term potential of the Company and has never been greater based upon the results that we achieved this quarter and we look forward to the future and we look forward to the future growing positively right now. And with that moderator I’ll turn it over to Q&A.

[Operator:]

Thank you. (Operator Instruction). And our first question is coming from Alex Paris from Barrington Research. Please go ahead.

[Alex Paris:]

Hi guys.

[Scott N. Greenberg:]

Good morning Alex.

[Alex Paris:]

I got a couple of questions for you. First of all, within professional and technical, which has been really the only area of decline consistently, over the last four quarters or so. Have we anniversaried the loss of some government business, because the government group is within that, and should we look forward to – I know you don't give guidance, but easier comps if nothing else going forward?

[Scott N. Greenberg:]

Well, I'll turn it over to Sharon for the details in a second, Alex. But I am pleased to report for the first time in five quarters, that we're anticipating that group to have a revenue increase in that group to have a revenue increase in Q3. So that a substantial news from where we were at for the last five quarters, where we've been experiencing significant declines and that we’ll see in Q3 and with that I’ll turn it to Sharon for more details on that.

[Sharon Esposito-Mayer:]

Yeah, Alex. Scott's exactly right. We do expect our Q3 revenue to be up from Q#. And we expect them to start narrowing the gap in terms of the year-on-year comparison to 2012 results, we are projecting right now that for the third quarter that they will still be down slightly from 2012 and that’s just primarily due to the fact year-on-year were down in the government area as we talked about, we’re also down due to the one contract that we had ending with a pharmaceutical client. The State of. Maryland win, though, that Doug discussed, as well as some other wins that we’re experiencing with various clients in the field of electronic semiconductor, pharma industry, we'll start to provide some of that quarter-over-quarter consecutive growth now, as we move forward.

[Alex Paris:]

Okay. Just so I understand that because I might not have heard that right. Do we expect professional and technical services revenue to be up year-on-year in third quarter or just up from the second quarter?

[Scott N. Greenberg:]

Up from the second quarter, but still below last year.

[Sharon Esposito-Mayer:]

But the gap in terms of year-on-year decline, we’re starting to narrow that gap as we move into Q3.

[Alex Paris:]

Okay, understood. Then moving to HSBC and the backlog, you said, Scott, that the backlog included only $6 million from HSBC. Over what time do you expect to earn that $6 million, is that like a forward 12 months?

[Sharon Esposito-Mayer:]

Yeah actually Alex, most of the $6 million – all of that $6 million is actually comprised of two different streams. One of it is actually an ongoing service stream that will be recognized over the next 12 months period of time and the other piece of it relates to transformational services that will be performed over most likely the next nine month period of time. So we do expect So we do expect additional funding to begin to trickle in for the various regions that we'll be implementing and rolling over, and so we expect to continue to see a backlog increase from HSBC quarter-over-quarter, and we expect to be full ramped on the HSBC contract by the end of Q2 of 2014.

[Scott N. Greenberg:]

I'm sorry, Alex. That's good news because what it's basically saying is that by the third quarter of next year considering we expect them to be our largest customer and if you look at our current run rate that that alone should contribute close to 10% depending on what number you are using and if you take the lowest end that’s currently 9%, but they're our largest customer, so that would contribute approximately 10% to our organic growth starting in the second half of next year.

[Alex Paris:]

All right. And then so how should we expect it to ramp over the next four quarters. Was there any revenue from the new HSBC contract in Q2, and then do we expect a couple million in the third quarter, and then a couple million more than that in the fourth quarter, kind of that sort of path, answer so you get – If it's going to be your largest customer, it's going to be an $8 million or $10 million a quarter sort of contributor, I would think.

[Scott N. Greenberg:]

We are currently working on the ramp up and we just had meetings with them last week, we just won the contract three, four weeks ago and we signed it at the beginning of July. We are meeting with them now and I would say the third quarter and the numbers that were used to project an increase, we have minimal revenue from that and Sharon could give you more of the exact number on that.

[Sharon Esposito-Mayer:]

Yeah Alex, in the second quarter we only included in our revenue results, we’re about $400,000 of revenue relating to the new HSBC contract win. Scott is right the project just launched and kicked off recently, I would expect that revenue in Q3 as we are still finalizing all the plans and just launched the contract and kick off, should people be somewhere around $750,000 to $1 million in Q3 as we continue to ramp up, but we are still finalizing all of those project plans currently.

[Alex Paris:]

And then it will be reasonable to assume that the Q4 contribution would be greater than that $750,000 to $1 million if it’s ramping.

[Sharon Esposito-Mayer:]

Yeah.

[Scott N. Greenberg:]

That’s correct.

[Sharon Esposito-Mayer:]

That is correct, part of the scope of the contract which Doug can speak to more if he wants to add on and while that’s bringing on various regions in various ways where we will be providing training support services to them. And those transitions will be applying in three phases for the next three quarters. And revenue would ramp accordingly as we transition you to those waves over.

[Scott N. Greenberg:]

So Alex.

[Alex Paris:]

Yep.

[Scott N. Greenberg:]

No go ahead.

[Alex Paris:]

I was just going to say that by the midpoint of 2014, we should be up to that run rate of $30 million or $40 million a year in revenue. Run rate.

[Sharon Esposito-Mayer:]

Yeah, that is what is anticipated.

[Scott N. Greenberg:]

Yeah and we don’t expect the first large milestone step to be – occur until towards the end of this year, probably December of this year, November, December late November, early December. As Sharon mentioned we are going to transfer work in waves, we expect the first wave to be a significant portion of that more than half of the other waves of the total contract combined, but that wave will start to transfer until maybe the first week in December. And again that date can move Alex, depending on the meetings that are going on probably now.

[Alex Paris:]

Okay. That's good for me, right now. Thank you.

[Operator:]

And the next question comes from Kevin Liu with B Riley & Company. Please go ahead.

[Kevin Liu:]

Hi good morning guys.

[Scott N. Greenberg:]

Hi Kevin.

[Kevin Liu:]

First question, here on just the SG&A line. You talked about some of the higher legal costs that hit you guys in the quarter. I was wondering if you could provide some color around the level of expenses that were tied to Prospero, I'm sorry I forgot the name of the other. And Lorien within the quarter and what a full quarter's worth of expenses might actually look like?

[Scott N. Greenberg:]

Well in the net profitable companies, so and in effect looking at it, if you're just looking at the SG&A line, Sharon will give you the numbers, but as far as I mentioned the one time expenses hitting to – from those two and other legal is over half a million. But she can give you he G&A, really, for that.

[Sharon Esposito-Mayer:]

Yeah Kevn, on legal fees relating specifically to the completion of the Prospero and Lorien acquisitions, it was about $400,000 in the quarter, we had other legal costs in the quarter that are just normal legal costs that we have associated with the business. We certainly don’t expect SG&A to stay at the run rate that it was at in the second quarter of this year, we would expect that rate to come down a little bit based on the fact that we had the acquisition legal cost incurred this quarter.

[Kevin Liu:]

Okay. That's what I was trying to get at. I just wanted to make sure that even after you had sort of a full quarter's worth for both these companies that SG&A number isn't going to stay this elevated. Beyond that, you guys have been more active, certainly in the second quarter, on the M&A front. I think that's always been part of your strategy. Just curious as to how you feel about the opportunities that are in front of you now. And would you expect to maybe not through a quarter, but continue to be pretty active over the remainder of this year or is all of your attention focused on implementing this HSBC program?

[Scott N. Greenberg:]

Kevin, that’s a great question. I would say right now with the amount of new business we have within the company in many different areas, we’re going to be focus on driving revenue and profit from our existing business, and further integrating BlessingWhite, which has had close to a 30% revenue increase. Again, we don’t see because they weren’t in the prior year that they have done much better under the GP umbrella, with wins, of course across numerous of our accounts. So we’re going to be focusing off things like BlessingWhite, obviously HSBC the integration of Lorien, the integration of Prospero, the growing of our LNG business. So while you can never say never, I think our plate is pretty full with all the positive developments we have in the business right now.

[Kevin Liu:]

Got it and just one question on the performance-readiness group. I think you talked about some of the drivers for the decline within the second quarter. Maybe if you could talk a little bit about what sort of pipeline you have for that group, moving forward whether there've been any changes made within that organization. That'd be helpful.

[Scott N. Greenberg:]

Yeah the pipeline right now is similar, so I don’t see a dramatic change in the pipeline. However, one of the things we are working on is the reduction of course; they have been working on some software products, one that we’ve come out with a fresh lease on called infoMaestro. And they've been working on a tool related to Microsoft Corporation as well. Last quarter the expense level was $600,000 for the quarter, and that’s an operating expense, but it is something on new product development. We’re starting to reduce that expense starting in the third quarter, so you will see a reduction. The hope would be by the end of the fourth quarter to have that as a minimal expense, which would greatly change their operating results and operating leverage.

[Kevin Liu:]

Great. I appreciate the color, there. Thanks for taking my questions, and congrats on all the wins.

[Scott N. Greenberg:]

Thank you Kevin.

[Operator:]

And our next question comes from Josh Vogel with Sidoti & Company. Please go ahead.

[Josh Vogel:]

Good morning everyone.

[Scott N. Greenberg:]

Oh. Good morning.

[Sharon Esposito-Mayer:]

Good morning Josh.

[Josh Vogel:]

Just a couple questions with HSBC. One, how long was the contract for?

[Sharon Esposito-Mayer:]

Yeah, the initial – yeah.

[Scott N. Greenberg:]

It’s a three year contract with two year follow on so five years.

[Josh Vogel:]

Okay. And just trying to get a little sense or direction on how margins are tracked quarter-to-quarter. One, I was curious if there are any other integration related costs from prior quarter acquisitions that hit up in the second half of the year and also any cost associated with the ramp of HSBC would be helpful.

[Scott N. Greenberg:]

Yeah, we are still working on different things related to HSBC based upon the meetings so that’s difficult to project at this point, as for our acquisition cost there should be none as far as additional acquisition cost. The one thing we do have if you look at the acquisition, Rovsing, which was the software product that we bought for the energy group and then integrating it in with energy organization did loose money in the second quarter. Before G&A and amortization, the loss was roughly $300,000, that product is being integrated into the rest of the energy group. We expect to slightly reduce loss in Q3 and by the time we get to Q4 and beyond, we should be selling the product as part of our initiative. So I think that the past acquisition, there was an investment in technology, hopefully by the end of the year you will see the expense of that were moved from our income statements in 2014.

[Josh Vogel:]

Okay. That's helpful. Now you're obviously seeing a growing appetite for the work you provide within the financial-services sector. Could you maybe talk about the pipeline of opportunities here with other large banks?

[Scott N. Greenberg:]

Yeah, and one of the things we talked about on the last quarter was a major opportunity with PNC Bank which we believe will become a significant account. When we entered into the second quarter we actually thought we would be generating revenue from them, but that project due to the initial launch got delayed and it'll start launching and being generating revenue in Q3. We believe that that could become not to the HSBC level, but to some of our to some of our other accounts, like SunTrust and Bank of America, it has the potential to do a few million dollars a quarter. So with that being said, we have done very well in the financial service sector, in addition to the other sectors we participate in.

[Josh Vogel:]

Yes, definitely. Now I know there were some project completions and one-time work that helped out in 2012, but overall organic revenue growth is slowing, and I was wondering if you could comment on expectations for organic revenue growth to resume in the back half of this year, and through 2014, if you take out the expected contribution from HSBC.

[Scott N. Greenberg:]

Well if you look at our organic revenue growth the big negative driver we’ve had has been the professional and technical services. So if you look at them going down by $4 million a quarter that’s 4% downward trend on the overall Company. We announced today that we expect our first sequential gain in this group, so one of the negative areas of the Company looks like that downward trend is over, and that’s been impacting us in this quarter with a negative 4%. Looking at the other groups, the performance-readiness group, we see as relatively stable that they do have a lot of opportunities, the big areas of growth is going to continue to come from our e-learning and learning-solutions group. And we expect that to continue. In addition we touched on the energy group today and if our LNG group grows from $8 million a year to $24 million three times the size, that could contribute like a standard $3 million or $4 million organic growth just by itself which will ramp I mean next quarter or two. So I think you see the LNG growth which will be substantial in addition to the PNC, in addition to HSBC.

[Josh Vogel:]

That's really helpful. And if I could just sneak in one more, regarding Sandy I know you're going up against some difficult year-over-year comparables, that unit was up almost 30% in 2012. Can you talk about the opportunity there and also, I saw a report about car production in the UK. I was curious how much revenue, if any, is coming from the UK in the Sandy segment?

[Scott N. Greenberg:]

In the UK Josh we are not doing much work or any work. As far as Sandy itself, we're pleased to report that for the first time with Chrysler Corporation, we're actually doing work outside of technical training and we are working in some other marketing and training work for Chrysler. So it’s a first time initiative with the GP, we hope that if we’re successful we could expand Chrysler like we’ve done in other companies. In addition we are starting a pilot program for Mitsubishi Motors. So we have added two customers just in the last quarter on in-sales training for Sandy Group, and we hope to have expansion, there. In addition, we would hope that overtime Hyundai recovers to levels that they were at previously. So we have seen growth in some areas, but we have seen a slight decrease in Hyundai this year and reason for the downturn in Hyundai was due to the NPG issues that they had, it contributed a reduction in funding. But again, we hope that that's just temporary. Then last year, we did get some special projects last year including the big Jaguar launch which was highly successful, so any type of change in models typically give us a boost in revenue, this year there were lots of change and we are hoping going into main part of this year and 2014, with the new product introductions, that will give us a boost with our current customers as well.

[Sharon Esposito-Mayer:]

And Josh, just to tack on to that the launch to that that we did for Jaguar was in Q3 of last year, so I mean we do expect Sandy at the time to have organic growth again in Q3, but it will be minimal organic growth, because that Jaguar event in non-recurring in Q3 of this year.

[Josh Vogel:]

Okay; right. All right. That's all I have for now.

[Scott N. Greenberg:]

And most of that’s U.S. based. Okay.

[Josh Vogel:]

Okay. Great. Great. Thank you.

[Operator:]

(Operator Instruction). Our next question is coming from Gary Drogar with Nelson Hall. Please go ahead.

[Gary Drogar:]

Hi, everyone, and congratulations as well on the contract with HSBC and as well as your other clients. Regarding the contracts that Doug was covering, I partially missed one of them. I believe it was when he was talking about the State of Maryland. I think it was he said $5.7 million contract. But my question is what are the services that are going to be provided to the State of Maryland? I missed that. Thank you.

[Douglas E. Sharp:]

Gary this is Doug, I can cover that again. So the State of Maryland is an early adopter of one of the federal health-benefits programs. They came out with their health benefits exchange program early and they have a need to train Maryland State employees and other folks that are responsible for executing administratively the requirements for the health benefit exchange. So what they're asking us to do is to work with our subject-matter expertise, provide some subject-matter expertise on the regulations, develop content both e-learning, computer based content and content that we can use with our instructors and get that delivered, developed in certain acceptable level and get that delivered to those people that are going to be responsible for executing administrating those regulations. So it’s few thousand people the content has got to be put together in short order and rolled out. Now they have – if you're following the State of Maryland the benefits exchange business, the federal governments delayed some of that about 12 months and at the federal level Maryland is pushing forward at the same pace to get their programs running. So it’s fundamentally its what we do, its training content development and training delivery.

[Gary Drogar:]

Great. Thanks very much. Appreciate it.

[Scott N. Greenberg:]

And one – things that we’re obviously hoping to do is through this process and working the state, we are going to develop expertise in the new type of medical plans and medical rules. So we would hope to withstand that into other of our customer base, so there is going to be an expertise at GP Strategies is going to have paid for by working the State of Maryland.

[Gary Drogar:]

Thank you.

[Operator:]

And we appear to have no further questions at this time.

[Scott N. Greenberg:]

Okay, thank you. Again, while we were disappointed with the quarter results, I think you could judge from this call that the actual both long and short-term prospects have greatly improved and we are looking forward to talking to you and we are looking forward to the next 12 month period as GP Strategies continues its expansion, continues winning work like HSBC and we look forward to hearing from you shortly. So thanks for participating on the call.

[Operator:]

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