GP Strategies Corporation
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good morning. My name is Denise, and I will be your conference operator today for the GP Strategies Third Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to Ann Blank, Director of Investor Relations.

[Ann M. Blank:]

Thank you. Good morning, and welcome to GP Strategies Third Quarter 2014 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. 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 2014 conference call. Today, we will follow our usually quarterly format. To initiate the call, I'll provide a brief overview of the results of the third quarter of 2014, then Sharon will present an in-depth financial analysis. Doug will give us key updates on our global initiatives. After Doug's presentation, I'll provide a final summary, and then we'll conclude with the Q&A session. This morning, before the market opened, GP Strategies announced its earnings for the third quarter of 2014. In the third quarter, the company achieved strong operating results with revenue of approximately $123.9 million and EBITDA of approximately $13.8 million. In the third quarter of 2014, GP Strategies continued on its path of organic revenue and EBITDA growth. We accomplished these improved results, while continuing to invest in expanding our infrastructure to support global initiatives. In addition, our successful Dutch auction tender offer in which we repurchased 2.1 million shares for approximately $61.7 million, is expected to be accretive to earnings per share for our shareholders for years to come. One of the highlights of the quarter is that all of the company's segment showed increased gross profit. The increase of revenue of $10.7 million compared to the third quarter of 2013, provided us with incremental gross profit on that incremental revenue of approximately 23%. That is a strong sign, because it's consistent with our long-term objectives. In addition to increased gross profit from all operating segments, the quarter included a substantial increase in our Professional & Technical Services group. We believe the company is truly at an inflection point and our continued investments enable the company to execute on a global basis. This strategy is becoming a key differentiator of the company in the training and performance industry. Our goal is to continue to establish GP Strategies' brand in the highly fragmented industries that we operate in. In recent quarter, we invested heavily in building our global reach and we anticipate seeing a return on these investments in the years to come. EBITDA for the quarter was $13.8 million. Again, that was inclusive of transition costs, and approximately $54.6 million for the trailing 12 month period ended September 30, 2014. That is approximately $2.82 per share on a trailing basis. If you calculate the per share amount based upon the reduction of the 2.1 million shares from the completed Dutch auction, EBITDA per share would increase to approximately $3.16 per share. Our short-term borrowings, which were approximately $17.8 million at June, were reduced to approximately $4.9 million or $12.9 million for the quarter before giving the impact of the Dutch auction. In addition to the Dutch auction, in the third quarter, we repurchased approximately 71,000 shares of GP Strategies' stock in our buyback program in the open market for approximately $1.7 million. We routinely get asked on the market size of the domestic training industry, which is now estimated to be approximately $60 billion domestically. Our largest competitor is actually the in-house company's training departments. We understand that it's highly fragmented and we plan on growing this in the future. We believe that the outsourcing of training activities is a wave, and our commitment is to invest in growing our operations for increased service levels. We believe our differentiated, our strong technical expertise, our global reach and our cost effective solutions. On previous calls, we discussed initiatives to expand into financial and insurance service sector. We started performing in this sector in 2011 and with the major wins we have currently in the last 2 years, now approximately 18% of our third quarter revenue was generated from this sector. In April 2014, we made an acquisition of the human capital space called Effective People. For the 6 months ended September 30, 2014, Effective has exceeded our expectations and was accretive to earnings per share. With that being said, Sharon will now give a detailed financial presentation for the quarter.

[Sharon Esposito-Mayer:]

Thanks, Scott. Good morning, everyone. We reported third quarter revenue of $123.9 million, which represented $10.7 million or 9% growth over the third quarter of 2013 revenue of $113.2 million. During the quarter, we achieved organic revenue growth of $8.7 million or 8%. Revenue in the Learning Solutions segment increased by $11.5 million or 23%. The effect of acquisition completed on April 1, contributed $2 million of revenue in the quarter. The remaining revenue growth in this segment was due to an $8.4 million net increase in e-learning content development and training outsourcing revenue, primarily due to a global outsourcing contract with a financial services customer, an $800,000 increase in leadership training and services, and a $1.4 million revenue increase due to a favorable change in exchange rates. These increases were partially offset by a $1.1 million decline in U.K. government-funded skills training. Professional & Technical Services revenue increased $1.1 million or 6% due to a $1.5 million increase in training and technical services for oil and gas clients, a $900,000 increase in revenue from U.S. government clients as well. These increases were partially offset by a $1.3 million net decrease in training and technical services for various customers. Performance readiness solutions revenue increased $300,000 or 2% over the third quarter of 2013 due to a net increase in systems implementation, training and various consulting services. Revenue in the Energy segment decreased by $1.1 million or 8%. The decline was largely due to the completion of alternative fuel projects. Sandy's revenue decreased $1 million or 6%, primarily due to the completion of certain projects in 2013. Sandy's third quarter results included $400,000 of publication revenue and we are projecting $3 million of publication revenue in the fourth quarter of 2014. The financial and insurance sector is now our largest market sector comprising 16% of revenue year-to-date, up from 11% of revenue in 2013. The automotive sector is now our second largest sector and comprised 14% of revenue year-to-date, down from 16% in 2013. Revenue earned from our operations outside the United States represented 23% of our year-to-date revenue, up from 20% in 2013. We reported $23.5 million or 18.2% of gross profit in the quarter, up $20.1 million or 17.7% for the third quarter of 2013. This represented a $2.5 million or 12% increase on the 9% revenue growth we had during the quarter. The effective acquisition contributed $300,000 of the increase in gross profit, and the remaining $2.2 million increase was primarily due to the revenue growth in the various segments. We experienced a decline in gross margin percent in the quarter in the Learning Solutions segment due to a decline in higher-margin revenues during the quarter and the continued startup costs associated with a new financial services contract in this segment. SG&A increased in the quarter by $2 million or 20%. The main drivers for the increase in SG&A are a $700,000 increase in labor, benefits and other expenses to support international expansion; a $400,000 increase in expenses associated with the establishment of new foreign entities; a $500,000 increase in IT infrastructure; and a $400,000 increase in bad debt expense. During the quarter, we recognized a $700,000 gain related to a change in the estimated earnout payments and associated fair value of contingent consideration accrued for certain acquisitions, which was a $500,000 increase over the gain recorded in the third quarter of 2013. Operating income increased by $1 million or 9% due to the changes discussed. Interest income and other income remained relatively flat over the third quarter of 2013. And our third quarter 2014 income before taxes increased $900,000 or 8% to $11.1 million. Tax expense was $3.9 million in the quarter or a rate of 34.9%, compared to $4.1 million or 40.1% in the third quarter of 2013. During the quarter, we recorded a benefit of $600,000 for a domestic production deduction taken on our 2013 tax return that was not taken in prior years. Excluding this and other adjustments, we are currently projecting a tax rate for 2014 of 40.2%. Third quarter net income was $7.2 million or a $1.1 million or 18% improvement over the third quarter of 2013, resulting in third quarter earnings per share of $0.37, compared to $0.32 in the third quarter of 2013. Moving on to some balance sheet highlights. Our cash balances were $9.1 million at September 30 of 2014, compared to the $5.6 million on hand at the end of 2013. Year-to-date 2014, we spent $2 million on contingent consideration payments for acquisitions previously completed and $3.1 million on share repurchases in the open market. Also, we completed the acquisition of Effective-Learning and Effective-People on April 1 for a purchase price of $9 million. We had borrowings outstanding at September 30 of $4.9 million, compared to $400,000 at December 31, 2013. Year-to-date 2014, cash provided by operating activities was $16.7 million, compared to $10.2 million for the same period in 2013. Cash generated in 2014 was comprised of year-to-date income of $19.7 million plus noncash add-back to net income, including depreciation and amortization of $7.5 million, nontax compensation expense of $3.5 million, and noncash taxes of $400,000, offset by a $1.5 million gain on contingent consideration. In addition, there was a $12.9 million decrease in cash from changes in other operating items, primarily due to an increase in unbilled receivables. Fixed asset additions were $2.3 million year-to-date, compared to $4.6 million year-to-date September of 2013. As Scott mentioned, on October 3, we purchased 2.1 million shares of stock under the Dutch tender offer for a price of $61.7 million. To fund the payments due under the tender offer, we borrowed $40 million under a term loan and the remainder under a new revolving credit facility. The initial interest rate on the borrowings will be the daily 1-month LIBOR rate plus 2%. We expect this transaction to be accretive to earnings per share in future quarters. At the end of September, backlog was $227 million in comparison to $237 million at the end of the third quarter of 2013. The decline in backlog is largely due to the completion of numerous LNG projects that occurred during 2014. Approximately 95% of the backlog will be recognized as revenue within the next 12 months. And that completes the financial update. So at this time, I will turn the call over to Doug, who will discuss some operational highlights.

[Douglas E. Sharp:]

Thank you, Sharon, and good morning, everyone. Again, as Scott and Sharon mentioned, we are pleased to report a strong third quarter with solid performance across the board. This was accomplished through the hard and creative work of our employees, the confidence and trust of our customers, and the support of our stakeholders. On the last call, I spent a few minutes on our strategy and success in growing our leadership development services, particularly with our existing global customers. The call before that, I boasted a bit, if you will, about our strategy to build a global footprint, capabilities, processes, and the success we have had leveraging that building into the winning and expanding of our managed learning services or outsourcing business. The results of both of these strategies was manifested in the growth numbers of Q3. Today, let me spend a few minutes on how we are perceived in the industry. Certainly, our work with the top 109 of the listed 500 largest global companies has not gone unnoticed. Our impact on the training industry is recognized by the associations, the research organizations and forums that represent the learning community. End-October generally marks the end of the season for training conferences and the annual recognition and awards given to companies that make a difference in our trade. GP Strategies usually fares well and this year was no exception. Just for a fact, let me read off a few. Training Industry Inc. completed its list of top companies in a variety of categories, and GP was organized as a leader in learning portals, workforce development, content development, sales training, outsourcing and leadership development. Our longest-running category is outsourcing

[Scott N. Greenberg:]

Thank you, Doug. One of the things that I wanted to focus on is our global reach, as Doug discussed. If you look at the company 3 years ago and even 5 years ago, we were primarily a domestic organization. We've been able in the past 3 years to really expand our footprint dramatically. We are now up to 24 countries of the world where we have offices, and we're delivering our services in over 45 countries currently. So we've been able to do this and still continue to provide the EBITDA and cash flow in the company, I think has been a major accomplishment. Our second initiative is as we grow our services, is cross-selling and cross-marketing. We believe, with all the services we developed both organically and through our acquisition, we could pretty much service any type of need in an organization and we're going to be doing our best to get that word out in the future. Last week we had our customer forum and had a record number of customers there, and we are fortunate to have it at American Express's offices in Fort Lauderdale. And the feedback we've got is that GP Strategies is definitely on the right track with their customer base. And we look forward again with expanding services with these customers in the future. We just completed the BMO back-to-school conference where we presented in New York. We take a little bit of a break from our conference schedule, but we've been invited to the RW Baird conference in February, which is our growth-oriented conference. So we hope to see a lot of our shareholders there as well. With that being said, I think it's time for the Q&A, moderator. So I'd like to turn it over for the Q&A session.

[Operator:]

[Operator Instructions] And our first question comes from the line of Kevin Liu.

[Kevin Liu:]

I guess first question I wanted to ask is, you talked about all the investments you guys have made across the -- to support the international expansion. I was wondering if you could talk about some of the opportunities you have to leverage going into fiscal '15 and beyond, specifically what sorts of proposals do you have out there that would enable you to take advantage of the new presence in some of these countries? Do they come from existing customers where you actually have other new prospects that could help deliver that return?

[Scott N. Greenberg:]

Well, let me start and then Doug could chime in as well. A big part of the growth, Kevin, in the countries have occurred in the last 12-month period. So this is a process now that we are starting to market across the board. We have had some wins in new areas, but nothing material at this stage. It has been both with current customers and new customers as well. We are seeing opportunities and we do -- have bid them for some larger jobs, but it's in the early stages right now. So while it hasn't had a major impact yet on our income statement, the opening up of those offices, we've been able to do it without negatively impacting our financial results. And we believe in the next few years and even now, you're starting to see the positive results of this expansion. Doug, would you like to add anything to that?

[Douglas E. Sharp:]

Yes, Kevin, I think Scott summed it up pretty well, but the point is that, we have a global footprint now to go to market with, that we didn't have a year ago -- we're significantly larger. And we're absolutely leveraging that footprint and global capabilities in our current proposals and we're seeing some success. We're getting lots of positive indication. And as Scott mentioned, that success is coming with -- expanding our domestic work with domestic customers into their global operations. But also introducing us to brand-new clients that are reaching out to GP and saying, help with this. So we have, early in the year, we landed a large industrial client that's leveraging our global capability, and we are -- on one end of the spectrum -- there's a number of proposals at different levels of the spectrum, where we're getting our -- what we call order of magnitude estimates for the work. And I would say on the other end of the spectrum, we're in the final throes of closing deals, that we'd hope to announce here in the next couple of months. So the answer is that we are leveraging it and it is making an impact on the company and we expect it to make an impact next year as well. Does that help?

[Kevin Liu:]

That's great. Yes, definitely, I appreciate that commentary. And then just with respect to HSBC, just wondering if you guys feel you're fully ramped in terms of kind of the near term revenue opportunity there? And then what were the actual transition costs that we could expect to go away in subsequent periods?

[Scott N. Greenberg:]

Yes. Kevin, let me comment on the financial service sector in total and have the transition cost to them as well. The transition cost for all our financial service sector jobs was roughly $900,000 in the quarter. When we look at our financial service sector, inclusive of all contracts, we believe that there's room for opportunity to expand with them. We're trying to market our leadership training, we're trying to market our technology group that does the Effective-People, and also works with different learning management systems. So I think if you're dealing with one customer, it's the same with all our customers. We believe that we have room to expand our relationships, but it's particularly strong in the financial service sector.

[Kevin Liu:]

Great. And just one last one. Just in terms of the SG&A costs, you guys called out a number of factors versus a year ago period. Are any of those considered kind of one-time in nature where you would expect the SG&A line to go down on a sequential basis?

[Sharon Esposito-Mayer:]

Yes, Kevin. The only area where I would expect it to possibly go down sequentially is the bad debt expense. When you look at our expense, compared to the third quarter last year, it was up by about $400,000. Our policy, as a general rule, is to reserve for any accounts receivables that are outstanding longer than 1 year. We really don't believe that those invoices that have aged beyond a year are uncollectible, but we do reserve for that as part of our policy. So I would expect it to go down by maybe a few hundred thousand dollars in future quarters. But where we are right now is the rate that I think we will remain at roughly to support the size and international expansion that we've undertaken.

[Operator:]

And our next question comes from the line of Alex Paris with Barrington Research.

[Alexander P. Paris:]

I've got a few questions for you just following up. So the 24 countries now that you have offices open, they were all open with a purpose. So they all have business in order to support HSBC or other contracts. And taken as a whole, are these offices profitable?

[Scott N. Greenberg:]

The answer to that is most of the startups were based on the basis of contracts. However, some of the -- some are profit, but most of the smaller ones are still in the startup stages and are at a loss position right now, but as we ramp up our customer base that should turn into profitability; that's just one of the costs of expanding globally. So it's a perfect answer to say that we've been able to accomplish that, and we're able to accomplish the income and EBITDA we have, knowing that we would have certain losses in these countries. So some of the bigger offices are profitable, some of the smaller offices are not profitable, but there is an opportunity. So I'll give you an example. We opened up an office in Japan and we had an employee there and a manager there, and we think there's a big opportunity for us there. But in effect, we're investing in that upfront.

[Alexander P. Paris:]

Got you. I guess my point was, you have that elusive first customer in every office, so now it's just only...

[Scott N. Greenberg:]

That is correct. In other words, we're not -- we haven't built a field of dreams. We basically have a customer and the customer is deferring some of the costs in most of the cases -- in some of the cases, not all of the cost, but we are not going in cold so to speak.

[Alexander P. Paris:]

Got you. And then the incremental transition costs of opening these offices, are we done opening offices, or are there more offices where you have to file and do licensing and things like that ahead of us?

[Scott N. Greenberg:]

We don't expect a significant amount of those. So I would say the majority of that -- again, I don't know if every office is included. But at this stage, I would say, if I'm missing it, it's probably 1 or 2, not 5 or 10.

[Alexander P. Paris:]

All right. So when we talk about the $900,000 in transition costs, I think in the quarter, how much was that over the last several quarters in ramp-up? And then that number should diminish going forward, is that true?

[Scott N. Greenberg:]

Yes. It was a little higher than we expected in the quarter. In the last quarter, we expected -- it was about $1 million. We would have expected it to diminish a little more than the slight amount it did. But we do expect that to continue to ramp down. But it hasn't been as fast as we would have hoped for.

[Alexander P. Paris:]

All right. Then shifting gears a bit. GP has been an acquisitive company in the past, even making an acquisition this year. Based on your comments earlier, the services that you've developed internally and that you gained through acquisitions, you have a lot to sell. Therefore, should we expect a slower rate of acquisition as you have built up your offering portfolio?

[Scott N. Greenberg:]

That is correct. While again, acquisition has been a key part of our past, right now, at least for the next period of time, we're focusing on our global footprint, expansion of our services and growth within our client base. That doesn't mean to say if a unique opportunity comes in, we wouldn't consider it, but the focus now is on the organic growth track.

[Alexander P. Paris:]

Okay. And then maybe similarly, you've always been a very aggressive share repurchaser, and given this recent Dutch auction tender offer taking 11% out of the denominator, what should we expect in terms of future share repurchases? Or will use of cash be focused on reducing the debt?

[Scott N. Greenberg:]

Well, I have to -- it's something the board have to decide and we'll have conversations on that. Originally, we were willing to purchase up to $80 million of stock. So we committed that type of cash in a repurchase. We received $61.7 million, so we actually got less than the full amount. So that was the commitment we made when we launched the deal. So now, we have to go back and rethink the opportunities on what the company should do for the best interest of the shareholders.

[Alexander P. Paris:]

Fair enough. And then, Sharon, just a quick question. What is the share count, given that you completed that Dutch auction tender offer early in the quarter or weighted average share count?

[Scott N. Greenberg:]

Yes, Alex. We had 19.3 million -- close to 19.4 million in the quarter and we have purchased 2.1 million on a fully diluted basis. So if everything stayed the same, it would be 17, it would be 7-point -- 17.3 million on a fully diluted basis.

[Alexander P. Paris:]

Great. And then last question...

[Scott N. Greenberg:]

Wait, I think it's a little lower. Let me check, hold on one second.

[Sharon Esposito-Mayer:]

Yes, it's around 17 million, Alex, give or take. We purchased -- we purchased roughly 2.1 million shares and our weighted average shares outstanding in the quarter were 19.4 million, so we're somewhere around 17.2 million.

[Alexander P. Paris:]

Okay, that's great. And then last question, this is more of a big picture question, just something I was thinking about recently. Given GP's history in helping out in terms of training and preparedness and disaster recovery and things like that, is there anything for GP to do in terms of the Ebola scare that's currently going on? I keep on seeing [indiscernible] hospitals are unprepared.

[Scott N. Greenberg:]

It's a great question. And I actually, we've done similar work in the past as far in our first responder training, training people for chemical, biological, nuclear. So we want to get the word out that we do have the capabilities to help people prepare, do contingency plans to emergencies. We've reached out to certain companies that we believe are involved more in hospital and healthcare than we are, to see if we could combine our offerings with them. And we are, so we'll see what happens, but we have reached that and we do think it is a very strong idea.

[Operator:]

And our next question comes from the line of Jeff Martin with Roth Capital Partners.

[Jeff Martin:]

Scott and Sharon, could you give us a sense of the margin expansion opportunity here in the flow-through on the incremental revenue this quarter? It's encouraging. Just wanted to get your sense on what you think the opportunity is maybe in the next 12 months, and then maybe over a longer horizon.

[Scott N. Greenberg:]

Yes. This was a, to me, a demonstration of that opportunity in the quarter, Jeff. So it's actually a great question. If you look at historically what we've told our shareholders and demonstrated that we typically say then organic growth, we could get anywhere between 18% to 20% of an organic growth incrementally to our EBITDA or pretax income. If you look at the actual results, because of the expansion of our corporate infrastructure and G&A -- inclusive of G&A -- we did not show that. But if you look at stabilizing our G&A structure, on the gross profit line, we did have 23% incremental gross margin on the revenue that we had. So on roughly $10 million plus of revenue, the incremental gross margin was at $2.3 million. And that is something that's been consistent with our long-term strategy and the strategy that we have discussed on prior calls. So that's been an encouraging sign. So what it shows is that if we're able to grow our revenue organically and maintain our G&A within this range, the profitability on incremental revenue growth should increase the EPS and the earnings on a higher margin than what we're currently running at.

[Jeff Martin:]

Okay. And then with your international infrastructure largely set up at this point, how much do you feel like you could leverage that from a revenue basis? I mean, could you throw $50 million onto that infrastructure, $100 million? Maybe ballpark idea there and what kind of leverage that might have on an operating or EBITDA margin basis?

[Sharon Esposito-Mayer:]

Yes. So just -- in many of the new countries that we have established entities in and that we're beginning work in, we have outsourced for the sake of speed, some of our infrastructure support services, in particular, relating to accounting and finance. Our goal at the end of the day would be to bring some of that back in-house, because it's really not as leverageable being outsourced when we're paying based on volume for services and the like. So our focus in 2015 is to work on trying to kind of centralize our infrastructure out of a few hubs, one being the United States, one being Europe and one being the Asia Pac region as we go forward. I believe that once we're able to do that, then we'll be able to leverage that infrastructure without adding significant cost and we'll be able to see the incremental margins more quickly. We're not there yet, though. But I would expect us and hope that we could be there by the end of 2015 in those locations.

[Scott N. Greenberg:]

And overall, Jeff, we're obviously, we believe, we're building up a footprint that could support a much higher revenue amount in future periods. So you look at where we were, and I could go back 5 years ago, when in 2009 we were doing $217 million in revenue. And 5 years later, we're closing in on roughly a $500 million run rate. So we've been able in the past 5 years to double our business, and we've been able to work at it and we hopefully continue to be able to achieve those type of results.

[Jeff Martin:]

Okay. And then, I understand you don't give guidance, but could you give us what sort of organic growth rate range you might anticipate for the coming year? And which segments do you feel have the greatest growth opportunity?

[Scott N. Greenberg:]

Well, let me start by saying, we never give 1 year. We in the past, say, that organically, over a longer-term basis, we like to grow in the 8% to 10% range, but we've never given guidance on a 1-year period. If you look at the areas that we seem to be doing very well in and have the most opportunity for growth, you'd have to say, one is the global outsourcing administration solution. You have to have the leadership training included, our financial service sector as a sector, our oil and gas business as a sector as well. So those are some of the areas that, in the sector, we've done very well on and we continue to do well. That doesn't mean we're not out there looking for more automotive business or more business in other areas. And sometimes, it's hard to predict. When you least expect it, you win a large contract in an area that in the past might not have been your fast-growing business. If you look at the Sandy group, while this year they've been flat, in the 2 years prior, they had the highest growth within our business as far as a percentage. So again, I could say generally where I expect the business revenue to increase, but we always get surprised. On the one thing that we did announce on last quarter call is the LNG business due to the completion of our large contract building facilities, which showed a decline and we gave guidance for this quarter on that. So that's one area that might be a tough comp going into next year. But other than that, we're looking at the businesses, the businesses hopefully to grow.

[Jeff Martin:]

And then last question, actually 2 questions left. On the oil and gas sector, let's look out 6 months and say oil is at $70 or $75, how might that impact your business for those types of customers?

[Scott N. Greenberg:]

Well, one of the things we help our customers -- and it's a very good question -- is what does business changes mean? But we actually, in oil and gas, we help our customers in safety, we help our customers in production. We help them improve efficiency. The same with our Energy Group. So by hiring GP, they typically could make more money, they could increase their bottom line. But our selling point to them is it's not an expense, it's a way to increase efficiency and increase your profitability whether on the energy side it's installing our EtaPRO in the system, whether on the oil and gas it's a safety program, our self sales [ph] in this industry is we improve efficiency.

[Jeff Martin:]

Okay, thanks. And then Sharon, what is the debt balance total today?

[Sharon Esposito-Mayer:]

Today, we are somewhere around, give or take, about $70 million, including the $40 million term loan.

[Jeff Martin:]

Okay. So the $40 million term is 1 month LIBOR plus 200 basis points? And what is the...

[Sharon Esposito-Mayer:]

Correct. They're both the same itself [ph] .

[Jeff Martin:]

What is the revolver?

[Sharon Esposito-Mayer:]

They're both the same rate. So the term loan and the revolver are both at the same rate.

[Scott N. Greenberg:]

And that's one of the reasons why the Dutch tender offer is so accretive. In other words, with the balance sheet strength and the cash flow strength of the company, we were able to get a revolving credit and term loan facility on an ordinary facility. It's not considered a leverage type of debt instrument. And that's what, if you look at the numbers and the interest expense we would occur, that's what makes this deal so accretive for our shareholders.

[Operator:]

[Operator Instructions] Our next question comes from the line of Gary Bragar with NelsonHall.

[Gary Bragar:]

I just had 2 questions. First one has 2 parts, first one is quick. So you're in 24 countries now, but I missed the first part of the first question. I missed the number of countries that you're currently delivering services in?

[Scott N. Greenberg:]

It's over 45.

[Gary Bragar:]

Okay. And then regarding the 24 countries that you're in, what other countries are you either currently or planning to be in, in the future?

[Scott N. Greenberg:]

Yes. Again, we feel comfortable right now with the model of where we're in. As I mentioned earlier, there might be 1 or 2 that we get into that we're currently not. But we think the 24 countries we're currently in could handle our current business model.

[Gary Bragar:]

Okay. And then the other question for either yourself or Doug, is if you're able to speak to any of the pipeline opportunities that you're seeing in the outsourcing business?

[Douglas E. Sharp:]

I can take that one, Gary. So I did mention, I think we had another question in and around that same topic. And we feel strong about the demand side of the equation. So not only do -- and we talk a lot about what we're offering the industry, but the demand side is looking very positive to us. So as Scott mentioned, our biggest competition is inside services. We are in discussions with -- at varying stages of discussions with a number of proposals, opportunities that run the gamut of introduction to getting close to closing, if you will. So we have -- we're confident about our pipeline across the market sectors. We're excited about the size of some of the opportunities which are coming across. And we're excited about the fact that these companies are willing to say -- I just talked to one yesterday Gary about, they're saying, you guys get it. You guys get our business. We're comfortable turning our internal business over to you, because of the understanding of the business in the marketplace, and how they go to market to their customers and the like. So I think we're offering the right services and I think the demand is there and we're putting the 2 together with some success and as a result, I think our pipeline is -- I'm comfortable with the pipeline without going into details.

[Operator:]

And sir, there are no further questions at this time.

[Scott N. Greenberg:]

Doug's last remark, I think, is a perfect ending of this call. So I don't have much to add. Doug mentioned he's comfortable with the pipeline, we talked about the earnings, we talked about opening up all the new offices. So obviously, a lot has been accomplished in the last 2 -- year period. I'd like to thank you, all, for participating on the call, and we look forward to the next call with you. So thank you very much.

[Operator:]

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