The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2020 which are located in Item 8 of this report.

General Overview

GP Strategies is a leading workforce transformation partner - a truly dedicated global provider delivering custom solutions - from the C-suite to the frontline. We are a global performance improvement and learning solutions provider focused on improving the effectiveness of organizations by delivering innovative and superior training, consulting and business improvement services, customized to meet the specific needs of our clients. We also provide leadership development, sales training, platform adoption, management consulting, technical consulting services, learning outsourcing and multimedia solutions which enhance our customized learning capabilities and diversify our service offerings. Our transformation focus, combined with deep listening, a customer-centric approach, industry innovation and workforce expertise, helps clients achieve superior business and operating results through our evidence-driven and technology-agnostic recommendations. We believe we are a global leader with over five decades of experience in providing solutions to optimize workforce performance.

Business Update Related to COVID-19 Pandemic

In March 2020, the World Health Organization declared COVID-19 a pandemic. Through the date of this report, the outbreak has adversely affected the economy in virtually every geography in which the Company operates, although the timing and severity of the adverse effects have varied across countries and regions. The pandemic has created uncertainty about the impact on the global economy. Governments have implemented various restrictions around the world, including closure of non-essential businesses, travel restrictions, shelter-in-place requirements and other restrictions.

The Company has taken a number of precautionary steps to safeguard its business and employees from COVID-19, including, but not limited to, implementing travel restrictions, arranging work from home capabilities and flexible work policies. We were able to make the transition to a remote workforce in response to the COVID-19 pandemic and its effects without incurring material expenses by implementing existing business continuity plans using existing resources. The safety and well-being of our employees is our first priority.

Certain of our service lines are more impacted by the restrictions noted above than others. We have services that involve bringing together groups of employees for classroom training sessions or other types of meetings and events. These types of services have been most impacted by COVID-19, however, we are actively working with our customers to support the transition of live-instructor-led training to virtual instructor-led training (VILT) or eLearning modalities. We also have integrated outsourcing solutions and face-to-face consulting services globally. These services involve individuals spending some portion of their time interfacing directly with clients and participating in activities at the client's location. To the extent client locations are closed, or our staff are not able to interface with clients virtually, these services have experienced some disruption from COVID-19.

The service lines that have been least impacted by COVID-19 are those that do not require face-to-face contact. These service lines include human capital management system implementation services, eLearning and VILT content development services, and technical consulting services. Overall, these service lines have seen comparatively less negative impacts from COVID-19 and have experienced positive momentum related to modality shifts for learning.

The Company estimates that the impact of COVID-19 on its revenue for the twelve months ended December 31, 2020 was at least $80.3 million. We expect to continue to experience year over year revenue declines for the first quarter of 2021. The quarter ended June 30, 2020 was the most negatively impacted by COVID-19 due to the widespread global shutdowns. Our revenue increased in the third and fourth quarters of 2020 as compared to the second quarter of 2020. In addition, due to significant cost scaling and cost cutting measures enacted in the year ended December 31, 2020, we increased our Adjusted EBITDA in the third and fourth quarters of 2020 as compared to the second quarter of 2020. Refer to the definition of "Adjusted EBITDA" in the "Non-GAAP Information" section within this Item 7 for additional information. The Company's cost cutting measures did not have a significant effect on costs for the first quarter of 2020 because the Company did not begin implementing substantial cost cutting measures until mid-March. At that time, the Company began implementing furloughs for billable employees where work had been delayed and certain layoffs of non-billable personnel. At the end of March, the Company initiated additional corporate-wide cost cutting measures effective April 1st, including compensation changes for director level and above employees, temporary salary reductions for certain managers, and mandatory paid time off of one day per week by non-billable personnel and billable personnel that were not fully billable during the second quarter of 2020.


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In addition, the Company took various actions to maintain liquidity in response to the potential impacts of COVID-19, including significant cost cutting measures and working with our bank to amend our Credit Agreement to provide additional borrowing availability by temporarily raising our maximum leverage ratio from 3.0 to 1.0 to 3.75 to 1.0 for the remainder of 2020. As of December 31, 2020, our borrowing availability was $79.9 million. In addition, there are various government assistance programs we have taken advantage of to partially mitigate the cash flow effects of COVID-19, such as the deferral of employer payroll taxes in the U.S. and other subsidies in different regions of the world where we operate. Tax payment deferrals provided for under the Cares Act resulted in liabilities for deferred payroll tax payments and other deferred tax payments under other government relief programs in different regions of the world where we operate totaled $10.4 million as of December 31, 2020, of which we expect to pay approximately $7.0 million in 2021, and $3.4 million in 2022.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. The ultimate extent of the COVID-19 impact to the Company will depend on numerous evolving factors and future developments that we are not able to predict. Factors related to COVID-19 and its effects that could adversely affect our business and results of operations are outlined in "Item 1A - Risk Factors".

Business Segments

Effective July 1, 2020, we began managing our business under a new organizational structure on a regional basis through our three geographic markets, North America, EMEA and Emerging Markets (Latin America and Asia Pacific countries). These became our reportable segments in the third quarter of 2020.

The reorganization was done to achieve the following:



•Unlock the potential of organic growth to achieve better business results for
our clients and the Company.
•Simplify the matrix and empower rapid local decision making in service of our
clients.
•Leverage global practice systems, processes, and intellectual property while
enabling regional authority to better align and deliver to local client needs.
•Enable efficient use of our corporate infrastructure with regional resources.

Across our regional operating structure, the Company provides Workforce Transformation Services categorized into three primary solution sets:

•Organizational Performance Solutions (OPS) - focus is on managed learning services, digital learning strategies and content development, business consulting, and leadership development solutions

•Technical Performance Solutions (TPS) - focus is on technical consulting services, enterprise technology adoption and HCM implementation services.

•Automotive Performance Solutions (APS) - provides sales enablement solutions, including custom product sales training and other customer loyalty and marketing relates services.

We have also identified four focus industries to deliver these services which include Automotive, Financial Services, Defense and Aerospace and Technology. Each of our three reportable segments represent an operating segment under ASC Topic 280, Segment Reporting.

We discuss our business in more detail in Item 1. Business and the risk factors affecting our business in Item 1A. Risk Factors.

Business Strategy

We seek to increase shareholder value by pursuing the following strategies:



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Continuously enhance our learning services offerings and capabilities. We believe the demand for learning and development services will continue to increase. In a knowledge based economy, this demand is driven by ever increasing technology, processes, products, and turnover of personnel. The rate and effectiveness of the transfer of knowledge to the workforce of our clients, their partners, and even their customers can positively impact their performance. We plan to meet this demand by continuously expanding our services and capabilities through organic growth initiatives based upon our technical expertise as well as through targeted acquisitions. Our acquisitions in recent years have added automotive industry training and platform adoption capabilities to our services offerings, strengthened our digital learning and custom training content development services in both the commercial and government sectors, and expanded our geographical reach. We believe that the breadth of our service and product offerings allows us to effectively compete for customers by offering a comprehensive solution for custom training, consulting, technical consulting services. We will continue to focus on increasing our capabilities to drive incremental growth from new, as well as existing, clients.

Develop and maintain strong client relationships. We plan to preserve and grow our business by cross-selling our services and capabilities across and within our existing client base. We have a successful track record of increasing our share of wallet with a number of our clients, many of whom we estimate currently outsource only a fraction of their training expenditures. We believe that as our clients benefit from the efficient, cost-effective and flexible training solutions and services that we provide, many of them will find it beneficial to increase the scope of training services that they outsource to third party providers. We believe that the strength of our relationships with our existing clients, including the insight and knowledge into their operations that we have developed through these relationships, when combined with the broad range of our service and product offerings, provide us with an advantage when competing for these additional expenditures.

Leverage managed learning capabilities. We have a demonstrated ability to provide training services across a wide spectrum of learning engagements from transactional multi-week assignments focused on a single aspect of a learning process to multi-year contracts where we manage the learning infrastructure of our customer. Integrated managed learning engagements typically require us to assume responsibility for the development, delivery and administration of learning functions and are generally carried out under multi-year agreements. We intend to leverage our managed learning capabilities to expand the customers and markets we serve.

Expand global platform. We believe international markets offer growth opportunities for our services. We established over twenty new subsidiaries in select countries since 2013 to support new global outsourcing contracts. We intend to leverage our enhanced infrastructure as well as to further establish our global platform in order to deliver our comprehensive offerings to new and existing clients on a global basis. In our experience, many of our clients are seeking access to additional international markets and as such we intend to enhance our international capabilities. In order to support their business expansion we are providing employee training solutions across organizations in different countries and different languages, while maintaining quality and consistency in the overall training program. By moving into specific international markets with our existing clients, we are able to not only deepen our relationships with those clients, but are also able to develop expertise in those markets that we can leverage to additional customers. We believe that following this strategy provides us with opportunities to gain access to international markets with established client relationships in those markets.




Significant Events

Restructuring Activities

During the year ended December 31, 2020, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the company to drive future revenue growth. We recorded severance related to restructuring expense of $0.9 million related to these activities. These restructuring costs were completed in 2020. In addition during 2020, we initiated restructuring and transition activities to improve the efficiency of our general and administrative support functions. We recorded a $0.5 million restructuring cost to an outside consultant to perform a review and assessment for efficiency opportunities related to these activities. We expect to incur additional costs during the first half of 2021. These costs are included in restructuring charges on the consolidated statements of operations and were paid by the end of 2020. In addition to these restructuring charges, we also incurred $11.1 million of severance expense during the year ended December 31, 2020 relating to cost scaling measures due to the impact of COVID-19 and margin improvement initiatives enacted in 2020. This severance expense is included in cost of revenue, general & administrative expenses and sales and marketing expenses on our consolidated statements of operations.



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In connection with the acquisition of TTi Global in December 2018, we initiated restructuring and transition activities during the year ending December 31, 2019 to reduce costs and eliminate redundant positions to realize synergies with the acquired business. For the year ended December 31, 2019, we recorded $1.6 million of restructuring charges in connection with these activities. These restructuring activities associated with the TTi Global acquisition were complete as of December 31, 2019. In addition to these restructuring charges, we also incurred $2.2 million of severance expense during the year ended December 31, 2019 relating to cost scaling measures which are included in cost of revenue, general & administrative expenses and sales and marketing expenses on our condensed consolidated statements of operations.

In December 2017, we announced a new organizational structure and plan to improve operating results by increasing organic growth and reducing operating costs. We also hired a chief sales officer in January 2018 to establish a structured and more centralized business development capability that will align our diverse market sector expertise with our service offerings. In connection with the reorganization, we initiated restructuring and transition activities to improve operational efficiency, reduce costs and better position the Company to drive future revenue growth. During the year ending December 31, 2017, we incurred restructuring charges of $3.3 million consisting primarily of severance costs and during the year ended December 31, 2018, we incurred restructuring charges of $2.9 million, consisting primarily of facility consolidation costs and severance expense. These restructuring activities were complete as of June 30, 2018. In addition to these restructuring charges, we also incurred $0.5 million of severance expense during the year ended December 31, 2018 relating to cost scaling measures which are included in cost of revenue, general & administrative expenses and sales and marketing expenses on our condensed consolidated statements of operations.

Divestitures

IC Axon Division

Effective October 1, 2020, we sold our IC Axon Division pursuant to a Stock Purchase Agreement with CM Canada Acquisitions, Inc., a wholly-owned subsidiary of ClinicalMind, LLC. The upfront cash purchase price was $28.0 million, subject to an adjustment based on the final determination of the business's working capital, of which $1.5 million was placed in escrow for 12 months. We recognized a pre-tax gain of $5.0 million, net of $0.3 million of direct selling costs, on the sale of the business. The gain represents the difference between the purchase price and the carrying value of the business, which was primarily $14.2 million of goodwill, $7.0 million of intangibles, $2.8 million of account receivables offset by liabilities of $1.9 million of deferred taxes. The IC Axon Division was part of the North America segment. Sale of Alternative Fuels Division

Effective January 1, 2020, we closed the sale of our Alternative Fuels Division pursuant to an Asset Purchase Agreement with Cryogenic Industries, LLC. The upfront cash purchase price was $4.8 million, which consisted of an advance payment of $1.5 million received on December 31, 2019 and $3.5 million received on January 2, 2020, offset by a $0.2 million cash payment to the buyer in March 2020 in settlement of the final net working capital as defined in the asset purchase agreement. In addition, up to $0.5 million of the purchase price is subject to the achievement of certain milestones under an assigned contract through the period December 31, 2021. We recognized a pre-tax gain of $1.1 million, net of $1.3 million direct selling costs, on the sale of the business. The gain represents the difference between the purchase price and the carrying value of the business, which primarily included net working capital of $0.1 million and goodwill of $2.6 million.

Sale of Tuition Program Management Business

On October 1, 2019, we sold our Tuition Program Management Business pursuant to an Asset Purchase Agreement with Bright Horizons Children's Centers LLC (the "buyer"). The purchase price was $20.0 million which was paid on closing, other than $1.5 million which was held in escrow to secure possible indemnification claims pursuant to the terms of an escrow agreement which was received in full on October 9, 2020. An additional $0.1 million was paid to the buyer in January 2020 based on the final calculation of assumed liabilities as defined in the asset purchase agreement. We recognized a pre-tax gain of $12.1 million, net of $0.1 million of direct selling costs, on the sale of the business. The gain recorded represents the difference between the purchase price and the carrying value of the business, which primarily included goodwill of $7.7 million.



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Acquisitions

We did not complete any acquisitions in 2020 and 2019. Below is a summary of the acquisitions we completed during 2018. See Note 3 to the accompanying Consolidated Financial Statements for further details, including the purchase price allocations.



2018 Acquisitions

TTi Global
On November 30, 2018, we entered into a Share Purchase Agreement with TTi
Global, Inc. (TTi Global) and its stockholders and acquired all of the
outstanding shares of TTi Global. The transaction under the Share Purchase
Agreement includes the acquisition of TTi Global's subsidiaries (except for its
UK and Spain subsidiaries and dormant entities) and certain affiliated
companies. The Company purchased TTi Global's UK and Spain subsidiaries in a
separate transaction in August 2018 which is discussed further below. TTi Global
is a provider of training, staffing, research and consulting solutions to
industries across various sectors with automotive as a core focus. The total
upfront purchase price for TTi Global was $14.2 million of cash paid upon
closing on November 30, 2018, subject to reduction based on a minimum working
capital requirement, as defined in the Share Purchase Agreement. During the year
ending December 31, 2019, the seller paid us $0.9 million in settlement of the
working capital adjustment. The acquired TTi Global business is included in the
North America and Emerging Markets segments and the results of its operations
have been included in the consolidated financial statements beginning December
1, 2018. The pro-forma impact of the acquisition is not material to our results
of operations.
TTi Europe

On August 7, 2018, we acquired the entire share capital of TTi (Europe) Limited, a subsidiary of TTi Global, Inc. (TTi Europe), a provider of training and research services primarily for the automotive industry located in the United Kingdom. The upfront purchase price was $3.0 million in cash. The acquired TTi Europe business is included in the EMEA segment and the results of its operations have been included in the consolidated financial statements beginning August 7, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

IC Axon

On May 1, 2018, we acquired the entire share capital of IC Acquisition Corporation, a Delaware corporation, and its subsidiary, IC Axon Inc., a Canadian corporation (IC Axon). IC Axon develops science-driven custom learning solutions for pharmaceutical and life science customers. The upfront purchase price was $30.5 million in cash. In addition, the purchase agreement requires up to an additional $3.5 million of consideration, contingent upon the achievement of an earnings target during a twelve-month period subsequent to the closing of the acquisition. No contingent consideration was payable as the earnings target was not achieved. The acquired IC Axon business is included in the North America segment and the results of its operations have been included in the consolidated financial statements beginning May 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

Hula Partners

On January 2, 2018, we acquired the business and certain assets of Hula Partners, a provider of SAP Success Factors Human Capital Management (HCM) implementation services. The purchase price was $10.0 million which was paid in cash at closing. The acquired Hula Partners business is included in the North America segment and the results of its operations have been included in the consolidated financial statements beginning January 2, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

Share Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the years ended December 31, 2020, December 31, 2019 and 2018, we repurchased approximately 255,000, 0 and 354,000 shares, respectively, of our common stock in the open market for a total cost of approximately $1.8 million, $0.0 million and $8.0 million, respectively. As of December 31, 2020, there was approximately $1.9 million available for future repurchases under the buyback program. There is no expiration date for the repurchase program.



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Results of Operations

Operating Highlights

Year ended December 31, 2020 compared to the year ended December 31, 2019 During the year ended December 31, 2020, our revenue decreased $110.2 million, or 18.9%, to $473.1 million compared to $583.3 million for the year ended December 31, 2019. The revenue decrease was comprised of a $77.9 million decrease in our North America segment, a $17.9 million decrease in our EMEA segment and a $14.4 million decrease in our Emerging Markets segments.

We estimate that the impact of COVID-19 resulted in at least a $80.3 million decrease in our revenue in 2020 compared to 2019 primarily due to the postponement of certain training events and other delays in client projects. In addition, our revenue decreased $19.3 million during 2020 due to discontinued revenue streams resulting from the sale of our IC Axon Division on October 1, 2020, our Alternative Fuels Division on January 1, 2020 and our Tuition Program Management Business on October 1, 2019. The foreign currency exchange rate changes resulted in a total $0.5 million decrease in U.S. dollar reported revenue during 2020. The changes in revenue and gross profit are discussed in further detail below by segment.

Operating income, the components of which are discussed in detail below, decreased $16.0 million or 57.0% during the year ended December 31, 2020. The decrease in operating income largely resulted from a $12.0 million decrease in gross profit and a $6.1 million decrease on gains from sales of business partially offset by a $1.8 million decrease in general and administrative expenses. For 2020, the company incurred severance expense, that was partially offset by a change in our paid time off policy, that in net totaled $9.2 million. Of this amount, $6.0 million is reflected in cost of revenue and the remaining $3.2 million is in general and administrative expenses. For 2019, the company incurred severance expense of $2.2 million of which $2.0 million is reflected in cost of revenue and the remaining $0.2 million is in general and administrative expenses.

For the year ended December 31, 2020, we had income before income taxes of $8.6 million compared to $22.4 million for the year ended December 31, 2019. Net income was $7.1 million, or $0.41 per diluted share, for the year ended December 31, 2020 compared to $15.2 million, or $0.90 per diluted share, for 2019. Diluted weighted average shares outstanding were 17.4 million for the year ended December 31, 2020 compared to 16.9 million for the year ended December 31, 2019.



Revenue

                            Years ended December 31,
                              2020                2019
                                 (In thousands)
North America         $     317,735            $ 395,603
EMEA                        107,203              125,118
Emerging Markets             48,169               62,569
                      $     473,107            $ 583,290

North America revenue decreased $77.9 million or 19.7% during the year ended December 31, 2020 compared to the same period in 2019. The revenue decrease is primarily due to the following:



•approximately a $50.0 million decrease due to the cancellation or postponement
of training events and other project related work due to COVID-19 shutdowns;
•a $19.3 million decrease due to divestiture of the IC Axon Division on October
1, 2020, our Alternative Fuels Division on January 1, 2020 and Tuition Program
Management Business on October 1, 2019;
•a $2.2 million net increase in our OPS practice primarily due to an increase in
content development services and the full ramp up of managed learning services
outsourcing contracts awarded in 2019;
•a $4.4 million net decrease in our TPS practice primarily due to the decline in
our shorter term project based work cycle due to the overall macro-economic
conditions;
•a $5.5 million net decrease in our APS practice primarily due to the completion
of several product launches with various automotive clients in 2019 that were
not renewed or repeated in 2020; and
•a $0.5 million decrease in revenue due to changes in foreign currency exchange
rates.
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EMEA revenue decreased $17.9 million or 14.3% during the year ended December 31, 2020 compared to the same period in 2019. The revenue decrease is primarily due to the following:



•approximately a $18.8 million decrease in revenue due to the cancellation or
postponement of training events and other project related work due to COVID-19
shutdowns;
•a $0.5 million net decrease in our OPS practice primarily due to the overall
macro-economic conditions impacting our shorter term project based work cycle;
•a $3.6 million net increase in our TPS practice primarily due to an increase
from the apprentice program in the United Kingdom and an increase in scope with
an aerospace industry customer;
•a $3.1 million net decrease in our APS practice primarily due to a contract
completion with no replacement contract; and the overall macro-economic
conditions impacting our shorter term project based work cycle; and
•a $1.0 million net increase in revenue due to changes in foreign currency
exchange rates.

Emerging Markets revenue decreased $14.4 million or 23.0% during the year ended December 31, 2020 compared to the same period in 2019. The revenue decrease is primarily due to the following:



•approximately a $11.5 million decrease in revenue due to the cancellation or
postponement of training events and other project related work due to COVID-19
shutdowns;
•a $1.8 million net decrease in revenue comprised of minor decreases across our
OPS, TPS and APS practices; and
•a $1.0 million net decrease in revenue due to changes in foreign currency
exchange rates.

Gross profit
                                            Years ended December 31,
                                        2020                                2019
                                         (In thousands except % Revenue)
                                                    % Revenue                    % Revenue
North America         $        59,258                 18.7%       $ 64,343         16.3%
EMEA                           11,532                 10.8%         14,916         11.9%
Emerging Markets                6,472                 13.4%          9,954         15.9%
                      $        77,262                 16.3%       $ 89,213         15.3%




North America gross profit of $59.3 million or 18.7% of revenue for the year ended December 31, 2020 decreased by $5.1 million or 7.9% when compared to gross profit of $64.3 million or 16.3% of revenue for the same period in 2019 primarily due to the COVID-19 related revenue decreases noted above. In addition, we incurred severance expense of $3.1 million partially offset by a $1.6 million decrease in expense due to a change in our paid time off policy in this segment which is included in cost of revenue during the year ended December 31, 2020 compared to $0.7 million of severance in the comparable period in 2019.

EMEA gross profit of $11.5 million or 10.8% of revenue for the year ended December 31, 2020 decreased by $3.4 million or 22.7% when compared to gross profit of $14.9 million or 11.9% of revenue for the same period in 2019 primarily due to the COVID-19 related revenue decreases noted above. In addition, we incurred severance expense of $3.7 million in this segment which is included in cost of revenue during the year ended December 31, 2020 compared to $1.3 million of severance in the comparable period in 2019.

Emerging Markets gross profit of $6.5 million or 13.4% of revenue for the year ended December 31, 2020 decreased by $3.5 million or 33.5% when compared to gross profit of $10.0 million or 15.9% of revenue for the same period in 2019 primarily due to the COVID-19 related revenue decreases noted above. In addition, we incurred severance expense of $0.8 million in this segment which is included in cost of revenue during the year ended December 31, 2020. There was no severance incurred in the year ended December 31, 2019.

General and administrative expenses

General and administrative expenses decreased $1.8 million or 2.8% from $64.5 million for the year ended December 31, 2019 to $62.7 million for the year ended December 31, 2020. We incurred a $3.5 million increase due to severance offset by a $0.3


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million decrease in expense due to a change in our paid time off policy, $1.9 million decrease in amortization and bad debt, and the remaining $3.1 million decrease in other labor and expense reductions.

Sales and marketing expenses

Sales and marketing expenses decreased $0.7 million or 8.7% from $7.9 million for the year ended December 31, 2019 to $7.2 million for the year ended December 31, 2020 primarily due to lower labor and benefits expense.

Restructuring charges

Restructuring expense were $1.4 million and $1.6 million for the years ended December 31, 2020 and 2019, respectively. We recorded severance expense of $0.9 million and other restructuring costs of $0.5 million for the year ended December 31, 2020 which is included in restructuring charges on the consolidated statements of operations and which was paid by the end of 2020. In connection with the acquisition of TTi Global in December 2018, we initiated restructuring and transition activities in the year ending December 31, 2019 to reduce costs and eliminate redundant positions to realize synergies with the acquired business. We recognized restructuring charges of $1.6 million during the year ended December 31, 2019 relating to these restructuring activities.

Gain on change in fair value of contingent consideration, net

For the year ended December 31, 2020, we did not have any outstanding contingent consideration liabilities related to prior acquisitions. We recognized a net gain on the change in fair value of contingent consideration related to acquisitions of $0.7 million for the year ended December 31, 2019.

Gain on Sale of Business

Effective January 1, 2020, we sold our Alternative Fuels Division pursuant to an Asset Purchase Agreement with Cryogenic Industries, LLC. We recognized a pre-tax gain of $1.1 million, net of $1.3 million direct selling costs, on the sale of the business. Effective October 1, 2020, we sold our IC Axon Division pursuant to a Stock Purchase Agreement with CM Canada Acquisitions, Inc., a wholly-owned subsidiary of ClinicalMind, LLC. We recognized a pre-tax gain of $5.0 million, net of $0.3 million of direct selling costs, on the sale of the business.

On October 1, 2019, we sold our Tuition Program Management Business pursuant to an Asset Purchase Agreement with Bright Horizons Children's Centers LLC. We recognized a pre-tax gain of $12.1 million, net of $0.1 million of direct selling costs, on the sale of the business.

Interest expense

Interest expense decreased $3.1 million to $2.9 million for the year ended December 31, 2020 compared to $6.1 million for the year ended December 31, 2019. The net decrease is due to lower borrowings and interest rates under the Company's credit facility as compared to the same period in 2019.

Other income (expense)

Other expense was $0.5 million compared to other income of $0.4 million for the years ended December 31, 2020 and 2019, respectively. The change in other income (expense) was primarily due to a $0.5 million gain in year ended December 31, 2019 related to a divested business, a $0.3 million lease impairment in the year ended December 31, 2020, and $0.3 million increase in other expenses partially offset by $0.1 million increase in joint venture income.

Income tax expense

Income tax expense was $1.5 million for the year ended December 31, 2020 compared to $7.2 million for the year ended December 31, 2019. Our effective income tax rate was 17.9% and 32.1% for the years ended December 31, 2020 and 2019, respectively. The decrease in the effective income tax rate compared to 2019 was primarily due to the tax effect of the sale of a subsidiary, partially offset by an increase in the valuation allowance on deferred tax assets. See Note 10 to the accompanying Consolidated Financial Statements for further information regarding income taxes.



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Results of Operations for Fiscal 2019 compared to 2018 Year ended December 31, 2019 compared to the year ended December 31, 2018 During the year ended December 31, 2019, our revenue increased $68.1 million, or 13.2%, to $583.3 million compared to $515.2 million for the year ended December 31, 2018. The revenue increase was comprised of a $29.1 million increase in our North America segment, a $8.8 million increase in our EMEA segment and a $30.2 million increase in our Emerging Markets segments. Foreign currency exchange rate changes resulted in a total $7.5 million decrease in U.S. dollar reported revenue during 2019. The changes in revenue and gross profit are discussed in further detail below by segment.

Operating income, the components of which are discussed in detail below, increased $8.4 million or 42.9% during the year ended December 31, 2019. The increase in operating income is largely due to a $12.1 million pre-tax gain on the sale of our Tuition Program Management Business in October 2019. In addition, we had a $11.5 million increase in gross profit and a $1.3 million decrease in restructuring charges during 2019 compared to 2018. These increases in operating income were partially offset by a $9.6 million increase in general and administrative expenses, a $3.1 million increase in sales and marketing expense, and a $3.8 million decrease in the gain on change in fair value of contingent consideration during 2019 compared to 2018.

For the year ended December 31, 2019, we had income before income taxes of $22.4 million compared to $14.8 million for the year ended December 31, 2018. Net income was $15.2 million, or $0.90 per diluted share, for the year ended December 31, 2019 compared to $9.8 million, or $0.59 per diluted share, for 2018. Diluted weighted average shares outstanding were $16.9 million for the year ended December 31, 2019 compared to $16.7 million for the year ended December 31, 2018.



Revenue
                            Years ended December 31,
                              2019                2018
                                 (In thousands)
North America         $     395,603            $ 366,481
EMEA                        125,118              116,296
Emerging Markets             62,569               32,383

                      $     583,290            $ 515,160

North America revenue increased $29.1 million or 7.9% during the year ended December 31, 2019 compared to the same period in 2018. The revenue increase is primarily due to the following:



•a $5.2 million increase due to the IC Axon business acquisition on May 1, 2018
and a $7.7 million increase due to the acquisitions of TTi Global on November
30, 2018;
•a $7.4 million net increase in our OPS practice primarily due to an increase in
revenue for managed learning and training content development services
associated with new training outsourcing contracts;
•a $0.8 million net increase in our TPS practice primarily due to an increase in
chemical demilitarization training services for the U.S. government and an
increase in disaster relief services, partially offset by a decrease in
engineering and technical training services;
•a $8.5 million net increase in our APS practice primarily due to new vehicle
launch events and other new projects for automotive clients; and
•a $0.7 million decrease in revenue due to changes in foreign currency exchange
rates.
EMEA revenue increased $8.8 million or 7.6% during the year ended December 31,
2019 compared to the same period in 2018. The revenue increase is primarily due
to the following:

•a $11.5 million increase due to the acquisitions of TTi Global on November 30,
2018 and TTi Europe on August 7, 2018;
•a $1.7 million net increase in our OPS practice primarily due to an increase in
revenue for managed learning and training content development services
associated with new training outsourcing contracts;
•a $2.2 million net increase in our TPS practice primarily due to an increase in
vocational skills training services provided to the UK government;
•a $0.9 million net decrease in our APS practice primarily due to new projects
for EMEA automotive clients; and
•a $5.8 million decrease in revenue due to changes in foreign currency exchange
rates.

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Emerging Markets revenue increased $30.2 million or 93.2% during the year ended December 31, 2019 compared to the same period in 2018. The revenue increase is primarily due to the following:



•a $29.9 million increase due to the acquisitions of TTi Global on November 30,
2018;
•a $6.1 million net increase in our OPS practice primarily due to an increase in
revenue for managed learning and training content development services
associated with new training outsourcing contracts;
•a $0.4 million net decrease in our TPS practice primarily due to a decline in
engineering and technical training services;
•a $4.5 million net decrease in our APS practice primarily due to a decline in
new projects for Latin America and Asia Pacific automotive clients; and
•a $1.0 million decrease in revenue due to changes in foreign currency exchange
rates.

Gross profit
                                           Years ended December 31,
                                       2019                               2018
                                                  % Revenue                    % Revenue
                                        (In thousands except % revenue)
North America         $      64,343                 16.3%       $ 56,434         15.4%
EMEA                         14,916                 11.9%         15,246         13.1%
Emerging Markets              9,954                 15.9%          6,063         18.7%

                      $      89,213                 15.3%       $ 77,743         15.1%


North America gross profit of $64.3 million or 16.3% of revenue for the year ended December 31, 2019 increased by $7.9 million or 14.0% when compared to gross profit of $56.4 million or 15.4% of revenue for the same period in 2018 primarily due to the revenue increases noted above.

EMEA gross profit of $14.9 million or 11.9% of revenue for the year ended December 31, 2019 decreased by $0.3 million or 2.2% when compared to gross profit of $15.2 million or 13.1% of revenue for the same period in 2018 primarily due to the lower margins associated with the TTi Global and TTi Europe acquisitions as well as an increase in severance costs of $0.8 million when comparing 2019 to 2018.

Emerging Markets gross profit of $10.0 million or 15.9% of revenue for the year ended December 31, 2019 increased by $3.9 million or 64.2% when compared to gross profit of $6.1 million or 18.7% of revenue for the same period in 2018 primarily due to the revenue increases noted above. The lower gross margin percent is driven primarily by the lower gross margins for the TTi Global acquired business.

General and administrative expenses

General and administrative expenses increased $9.6 million or 17.6% from $54.8 million for the year ended December 31, 2018 to $64.5 million for the year ended December 31, 2019. The increase in general and administrative expenses is primarily due to a $4.5 million increase in G&A expense associated with the acquired TTi businesses and a $2.0 million increase due to internal labor costs that were capitalized in connection with our financial system implementation in 2018 but that are included in G&A expense in 2019. In addition, there was a $2.8 million increase in bad debt expense primarily due to an additional reserve of $2.2 million recognized in the year ending December 31, 2019 resulting from a settlement agreement relating to outstanding accounts receivable on a contract that was previously terminated by a foreign oil and gas client in 2017. There was also a $0.3 million net increase in miscellaneous other G&A expenses largely due to an increase in external accounting and tax consulting fees.

Sales and marketing expenses

Sales and marketing expenses increased $3.1 million or 64.1% from $4.8 million for the year ended December 31, 2018 to $7.9 million for the year ended December 31, 2019. The increase in sales and marketing expenses is primarily due to labor and benefits expense relating to the hiring of additional business development personnel as well as marketing personnel, some of which represents new investments and some of which results from centralizing marketing resources that were previously recorded in cost of revenue.


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Restructuring charges



Restructuring expense were $1.6 million and $2.9 million for the years ended
December 31, 2019 and 2018, respectively. In
connection with the acquisition of TTi Global. in December 2018, we initiated
restructuring and transition activities in the
year ended December 31, 2019 to reduce costs and eliminate redundant positions
to realize synergies with the acquired business. We recognized restructuring
charges of $1.6 million during the year ended December 31, 2019 relating to
these restructuring activities. During the year ended December 31, 2018, we
recognized $2.9 million of restructuring charges in connection with the
reorganization that was initiated in December 2017.

Gain on change in fair value of contingent consideration, net

During the years ended December 31, 2019 and 2018, we recognized a net gain of $0.7 million and $4.4 million, respectively, on the change in fair value of contingent consideration related to acquisitions. The gains are due to lower earnings for the acquired businesses compared to our original forecasts, resulting in a reversal of the contingent consideration liabilities. See Note 3 to the Consolidated Financial Statements for a detailed discussion of the accounting for the changes in fair value of contingent consideration during the year ended December 31, 2019.

Interest expense

Interest expense increased $3.1 million to $6.1 million for the year ended December 31, 2019 compared to $2.9 million for the year ended December 31, 2018. The net increase is due to a $2.0 million increase in interest expense due to both an increase in interest rates and higher borrowings under the Credit Agreement, as well as a $1.1 million non-recurring reversal of an interest accrual during the year ending December 31, 2018 related to an unremitted value-added tax associated with prior year client billings which was favorably settled during the year ending December 31, 2018.

Other income (expense)

Other income was $0.4 million compared to other expense of $1.9 million for the years ended December 31, 2019 and 2018, respectively. The increase in other income was primarily due to a $1.6 million decrease in foreign currency losses primarily related to the effect of exchange rates on intercompany receivables and payables and third party receivables and payables that are denominated in currencies other than the functional currency of our legal entities. There was also a net $0.8 million improvement in other income due to a $0.5 million gain in the year ended December 31, 2019 related to a divested business for which a $0.3 million loss on disposal was included in other expense during the year ended December 31, 2018. In addition, there was a $0.4 million increase in miscellaneous other income. Partially offsetting these improvements was a $0.4 million loss on a litigation settlement, including legal costs, during the year ended December 31, 2019, which is included in other income (expense).

Gain on sale of business

On October 1, 2019, we sold our Tuition Program Management Business pursuant to an Asset Purchase Agreement with Bright Horizons Children's Centers LLC (the "buyer"). The purchase price was $20.0 million which was paid on closing, other than $1.5 million which was held in escrow to secure possible indemnification claims pursuant to the terms of an escrow agreement which was received in full on October 9, 2020. An additional $0.1 million was paid to the buyer in January 2020 based on the final calculation of assumed liabilities as defined in the asset purchase agreement. We recognized a pre-tax gain of $12.1 million, net of $0.1 million of direct selling costs, on the sale of the business. The gain recorded represents the difference between the purchase price and the carrying value of the business, which primarily included goodwill of $7.7 million.

Income taxes



Income tax expense was $7.2 million for the year ended December 31, 2019
compared to $4.9 million for the year ended
December 31, 2018. Our effective income tax rate was 32.1% and 33.4% for the
years ended December 31, 2019 and 2018,
respectively. The decrease in the effective income tax rate in 2019 compared to
2018 is primarily due to a change in the mix of
income from higher to lower taxing jurisdictions. See Note 10 to the
accompanying Consolidated Financial Statements for further information regarding
income taxes.
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Liquidity and Capital Resources

Working Capital

For the year ended December 31, 2020, our working capital increased $7.0 million from $92.9 million at December 31, 2019 to $99.9 million at December 31, 2020. We believe that cash generated from operations and borrowings available under our Credit Agreement ($79.9 million of available borrowings as of December 31, 2020 based on our consolidated leverage ratio) will be sufficient to fund our working capital and other requirements for at least the next twelve months. This belief does not take into account exacerbation of, or additional or prolonged disruptions caused by, the COVID-19 pandemic that result in a material adverse impact on our business, which are events beyond our control, or unanticipated uses of cash. The anticipated cash needs of our business could change significantly if events, including economic disruptions, arising from the COVID-19 pandemic worsen, or if other economic conditions change from those currently prevailing or from those now anticipated, or if other unexpected circumstances arise that may have a material effect on the cash flow or profitability of our business, including material negative changes in the health and welfare of our employees or those of our clients, and the operating performance or financial results of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:



•our future results of operations;
•the quality of our accounts receivable;
•our relative levels of debt and equity;
•the volatility and overall condition of the capital markets; and
•the market price of our securities.

Any new debt funding, if available, may be on terms less favorable to us than our Credit Facility. See "Forward-Looking Statements" in Part I, the information contained under the heading "Risk Factors" in Part I, Item 1A, of this Annual Report on Form 10-K for the year ended December 31, 2020.

As of December 31, 2020, the amount of cash held outside of the U.S. by foreign subsidiaries was $21.9 million. The Tax Cuts and Jobs Act of 2017 includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, we intend to continue to invest these earnings, as well as our capital in these subsidiaries, indefinitely outside of the U.S. and do not expect to incur any significant, additional taxes related to such amounts.

Share Repurchase Program

We have a share repurchase program under which we may repurchase shares of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. Repurchases are made at management's discretion in accordance with applicable federal securities law. The amount and timing of share repurchases depend on a variety of factors, including market conditions and prevailing stock prices. The share repurchase authorization does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended or discontinued at any time at the discretion of our Board of Directors. During the years ended December 31, 2020, 2019 and 2018, we repurchased approximately 255,000, 0 and 354,000 shares, respectively, of our common stock in the open market for a total cost of approximately $1.8 million, $0.0 million and $8.0 million respectively. As of December 31, 2020, there was approximately $1.9 million available for future repurchases under the current buyback program. There is no expiration date for the repurchase program.

Proceeds from Divestitures

Effective October 1, 2020, we sold our IC Axon Division pursuant to a Stock Purchase Agreement with CM Canada Acquisitions, Inc., a wholly-owned subsidiary of ClinicalMind, LLC. The upfront cash purchase price was $28.0 million, of which $1.5 million was placed in escrow for 12 months, subject to an adjustment based on the working capital of the IC Axon Division as of October 1, 2020.



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Effective January 1, 2020, we sold our Alternative Fuels Division pursuant to an Asset Purchase Agreement with Cryogenic Industries, LLC. The purchase price is up to $4.8 million, subject to adjustment based on a final calculation of net working capital as defined in the asset purchase agreement. Of the total purchase consideration, we received an advance payment of $1.5 million on December 31, 2019 and the remaining upfront consideration of $3.5 million on January 2, 2020 based on the estimated net working capital. In addition, up to $0.5 million of the purchase price is subject to the achievement of certain milestones under an assigned contract through the period December 31, 2021. The purchase price adjustment for closing net working capital was finalized during the first quarter of 2020.

On October 1, 2019, we sold our Tuition Program Management Business pursuant to an Asset Purchase Agreement with Bright Horizons Children's Centers LLC (the "buyer"). The purchase price was $20.0 million which was paid on closing, other than $1.5 million which was held in escrow to secure possible indemnification claims pursuant to the terms of an escrow agreement which was received in full on October 9, 2020. An additional $0.1 million was paid to the buyer in January 2020 based on the final calculation of assumed liabilities as defined in the asset purchase agreement. We recognized a pre-tax gain of $12.1 million, net of $0.1 million of direct selling costs, on the sale of the business. The gain recorded represents the difference between the purchase price and the carrying value of the business, which primarily included goodwill of $7.7 million.

Disbursements related to Acquisitions

We did not complete any acquisitions in 2020 and 2019. Below is a summary of the acquisitions we completed during 2018.

TTi Global On November 30, 2018, we entered into a Share Purchase Agreement with TTi Global, Inc. (TTi Global) and its stockholders and acquired all of the outstanding shares of TTi Global. The transaction under the Share Purchase Agreement includes the acquisition of TTi Global's subsidiaries (except for its UK and Spain subsidiaries and dormant entities) and certain affiliated companies. The Company purchased TTi Global's UK and Spain subsidiaries in a separate transaction in August 2018 which is discussed further below. TTi Global is a provider of training, staffing, research and consulting solutions to industries across various sectors with automotive as a core focus. The total upfront purchase price for TTi Global was $14.2 million of cash paid at closing on November 30, 2018. The final purchase price allocation above was adjusted during 2019 based on the finalization of the working capital adjustment, as defined in the Share Purchase Agreement, and other purchase accounting adjustments identified during the measurement period. During the third quarter of 2019, the seller paid us $0.9 million in settlement of the working capital adjustment. The purchase price allocation for the acquisition includes $4.4 million of a customer-related intangible asset which is being amortized over nine years and $0.5 million of a marketing-related intangible asset which was amortized over one year from the acquisition date. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the company. None of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired TTi Global business is included in the North America and Emerging Markets segments and the results of its operations have been included in the consolidated financial statements beginning December 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

TTi Europe On August 7, 2018, we acquired the entire share capital of TTi (Europe) Limited, a subsidiary of TTi Global, Inc. (TTi Europe), a provider of training and research services primarily for the automotive industry located in the United Kingdom. The upfront purchase price was $3.0 million in cash. The purchase price allocation for the acquisition primarily includes $0.8 million of a customer-related intangible asset which is being amortized over nine years from the acquisition date. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the company. None of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired TTi Europe business is included in the EMEA segment and the results of its operations have been included in the consolidated financial statements beginning August 7, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

IC Axon On May 1, 2018, we acquired the entire share capital of IC Acquisition Corporation, a Delaware corporation, and its subsidiary, IC Axon Inc., a Canadian corporation (IC Axon). IC Axon develops science-driven custom learning solutions for pharmaceutical and life science customers. The upfront purchase price was $30.5 million in cash. In addition, the purchase agreement requires up to an additional $3.5 million of consideration, contingent upon the achievement of an earnings target during a twelve-month period subsequent to the closing of the acquisition. The purchase price allocation for the acquisition includes $10.4 million of a customer-related intangible asset which is being amortized over eight years and $0.2 million of a marketing-related intangible assets being amortized over three years from the acquisition date. The goodwill recognized is due to the expected synergies from combining the operations of the acquiree with the company. None of the goodwill recorded for


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financial statement purposes is deductible for tax purposes. The acquired IC Axon business is included in the North America segment and the results of its operations have been included in the consolidated financial statements beginning May 1, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

Hula Partners On January 2, 2018, we acquired the business and certain assets of Hula Partners, a provider of SAP Success Factors Human Capital Management (HCM) implementation services. The purchase price was $10.0 million which was paid in cash at closing. The goodwill recognized is due to the expected synergies from combining operations of the acquiree with the Company. The purchase price allocation for the acquisition includes $1.4 million of a customer-related intangible asset which is being amortized over four years and $0.1 million of a marketing-related intangible asset which is being amortized over two years from the acquisition date. All of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired Hula Partners business is included in the North America segment and the results of its operations have been included in the consolidated financial statements beginning January 2, 2018. The pro-forma impact of the acquisition is not material to our results of operations.

Significant Customer and Concentration of Credit Risk

We have a market concentration of revenue in both the automotive sector and the financial services sector. Revenue from the automotive industry accounted for approximately 25%, 28% and 23% of our consolidated revenue for the years ended December 31, 2020, 2019 and 2018, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 14%, 13% and 14% of our consolidated revenue for the years ended December 31, 2020 , 2019 and 2018, respectively. As of December 31, 2020 and 2019, accounts receivable from a single automotive customer totaled $16.7 million, or 15%, and $17.2 million, or 13%, of our consolidated accounts receivable balance, respectively.

Revenue from the financial services industry accounted for approximately 17%, 16% and 19% of our consolidated revenue for the years ended December 31, 2020, 2019 and 2018, respectively. In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 9%, 10% and 13% of our consolidated revenue for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020 and 2019, billed and unbilled accounts receivable from a single financial services customer totaled $7.2 million, or 5%, and $15.4 million, or 8% of our consolidated accounts receivable and unbilled revenue balances, respectively. No other single customer accounted for more than 10% of our consolidated revenue in 2020 or consolidated accounts receivable balance as of December 31, 2020.

Cash Flows

Year ended December 31, 2020 compared to the year ended December 31, 2019

Our cash balance increased $14.9 million from $8.2 million as of December 31, 2019 to $23.1 million as of December 31, 2020. The increase in cash during the year ended December 31, 2020 resulted from cash provided by operating activities of $59.0 million, cash provided by investing activities of $29.5 million, cash used in financing activities of $76.3 million and a $2.7 million positive effect due to exchange rate changes on cash.

Cash provided by operating activities was $59.0 million for the year ended December 31, 2020 compared to $13.4 million in 2019. The increase in cash provided by operating activities is primarily due to an improvement in cash collections of accounts receivable during the year ended December 31, 2020 compared to the same period in 2019.

Cash provided by investing activities was $29.5 million for the year ended December 31, 2020 compared $16.0 million in 2019. The increase in cash from investing activities is primarily due to cash proceeds from the sale of our Alternative Fuels Division on January 1, 2020 and IC Axon Division on October 1, 2020.

Cash used in financing activities was $76.3 million for the year ended December 31, 2020 compared to $32.3 million in 2019. The increase in cash used in financing activities is primarily due to increased net repayments of borrowings under our Credit Agreement.

Year ended December 31, 2019 compared the year ended December 31, 2018



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For a comparison of our cash flows for the years ended December 31, 2019 and 2018, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 10, 2020.

Debt

On November 30, 2018, we entered into a Credit Agreement with PNC Bank, National Association, as administrative agent and a syndicate of lenders (the "Credit Agreement"), replacing the prior credit agreement with Wells Fargo dated December 21, 2016, as amended on April 28, 2018 and June 29, 2018 (the "Original Credit Agreement"). The Credit Agreement provides for a revolving credit facility, which expires on November 29, 2023, and consists of: a revolving loan facility with a borrowing limit of $200 million, including a $20 million sublimit for foreign borrowings; an accordion feature allowing the Company to request increases in commitments to the credit facility by up to an additional $100 million; a $20 million letter of credit sublimit; and a swingline loan credit sublimit of $20 million. The obligations under the Credit Agreement are guaranteed by certain of the Company's subsidiaries (the "Guarantors"). As collateral security under the Credit Agreement and the guarantees thereof, the Company and the Guarantors have granted to the administrative agent, for the benefit of the lenders, a lien on, and first priority security interest in substantially all of their tangible and intangible assets. The proceeds of the Credit Agreement were used, in part, to repay in full all outstanding borrowings under the Original Credit Agreement, and additional proceeds of the revolving credit facility are expected to be used for working capital and other general corporate purposes of the Company and its subsidiaries, including the issuance of letters of credit and Permitted Acquisitions, as defined.

Borrowings under the Credit Agreement may be in the form of Base Rate loans or Euro-Rate loans, at the option of the borrowers, and bear interest at the Base Rate plus 0.25% to 1.25% or the Daily Adjusted London Inter-bank Offered Rate (LIBOR) plus 1.25% to 2.25% respectively. Base Rate loans will bear interest at a fluctuating per annum Base Rate equal to the highest of (i) the Overnight Bank Funding Rate, plus 0.5%, (ii) the Prime Rate, and (iii) the Daily Adjusted LIBOR, plus 100 basis points (1.0%); plus an Applicable Margin. Determination of the Applicable Margin is based on a pricing grid that is generally dependent upon the Company's Leverage Ratio (as defined) as of the end of the fiscal quarter for which consolidated financial statements have been most recently delivered. We may prepay the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions.

The Credit Agreement contains customary representations, warranties and affirmative covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions, including but not limited to: (i) liens, (ii) investments, (iii) indebtedness, (iv) significant corporate changes, including mergers and acquisitions, (v) dispositions, (vi) restricted payments, including stock dividends, and (vii) certain other restrictive agreements. The Credit Agreement also requires the Company to maintain compliance with the following financial covenants; (i) a maximum leverage ratio, and (ii) a minimum interest expense coverage ratio. On May 7, 2020, we entered into an amendment to the Credit Agreement that increases the maximum leverage ratio we are required to maintain from 3.0 to 1.0 to 3.75 to 1.0 for the fiscal quarters ending June 30, 2020, September 30, 2020 and December 31, 2020, and 3.0 to 1.0 for fiscal quarters ending March 31, 2021 and thereafter, and a minimum interest expense coverage ratio of 3.0 to 1.0. The leverage ratio is computed by dividing our Funded Debt by our Consolidated EBITDA, as those terms are defined in the Credit Agreement, for the trailing four fiscal quarters, and the interest coverage ratio is computed by dividing our Consolidated EBITDA by our Consolidated Interest Expense for the trailing four fiscal quarters. As of December 31, 2020, our leverage ratio was 0.5 to 1.0 and our interest expense coverage ratio was 9.1 to 1.0, each of which was in compliance with the Credit Agreement. In addition, the amendment to the Credit Agreement reduced the borrowing limit under the credit facility from $200 million to $140 million.

As of December 31, 2020, there were $12.7 million of borrowings outstanding and $79.9 million of available borrowings under the revolving loan facility based on our leverage ratio.

For the year ended December 31, 2020 and 2019, the weighted average interest rate on our borrowings was 2.6% and 4.5%, respectively. As of December 31, 2020, the fair value of our borrowings under the Credit Agreement approximated its carrying value as it bears interest at variable rates. There were $1.1 million of unamortized debt issue costs related to the Credit Agreement as of December 31, 2020 which are being amortized to interest expense over the term of the Credit Agreement and are included in Other assets on our consolidated balance sheet.

Contractual Payment Obligations

We enter into various agreements that result in contractual obligations in connection with our business activities. These obligations primarily relate to debt and interest payments under our Credit Agreement, operating leases and purchase


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commitments under non-cancelable contracts for certain products and services. The following table summarizes our total contractual payment obligations as of December 31, 2020 (in thousands):



                                                           Payments due in
                                                                                After
                                    2021        2022-2023      2024-2025        2025         Total

Operating lease commitments      $  5,957      $   8,570      $    6,236      $ 3,616      $ 24,379
Purchase commitments (1)            6,392          4,575               -            -        10,967
Total                            $ 12,349      $  13,145      $    6,236      $ 3,616      $ 35,346



 (1)    Excludes purchase orders for goods and services entered into by us in the ordinary
        course of business, which are non-binding and subject to amendment or termination
        within a reasonable notification period.


Off-Balance Sheet Commitments

As of December 31, 2020, we had outstanding letters of credit totaling approximately $0.4 million, which expire by 2022. In addition, as of December 31, 2020, we had two outstanding performance bonds totaling $6.6 million primarily for contracts in our Alternative Fuels Division. We do not have any off-balance sheet financing except for short-term operating leases and letters of credit entered into in the normal course of business.

Management Discussion of Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

Certain of our accounting policies require higher degrees of judgment than others in their application. These include revenue recognition, impairment of intangible assets, including goodwill, and income taxes, which are summarized below. In addition, Note 1 to the accompanying Consolidated Financial Statements includes further discussion of our significant accounting policies.

Revenue Recognition



We account for revenue in accordance with Accounting Standard Codification (ASC)
Topic 606, Revenue from Contracts with Customers (ASC Topic 606), which we
adopted on January 1, 2018, using the modified retrospective method. Revenue is
measured based on the consideration specified in a contract with a customer.
Most of our contracts with customers contain transaction prices with fixed
consideration, however, some contracts may contain variable consideration in the
form of discounts, rebates, refunds, credits, price concessions, incentives,
performance bonuses, penalties and other similar items. When a contract includes
variable consideration, we evaluate the estimate of variable consideration to
determine whether the estimate needs to be constrained; therefore, we include
the variable consideration in the transaction price only to the extent that it
is probable that a significant reversal of the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable
consideration is subsequently resolved. We recognize revenue when we satisfy a
performance obligation by transferring control over a product or service to a
customer. This can result in recognition of revenue over time as we perform
services or at a point in time when the deliverable is transferred to the
customer, depending on an evaluation of the criteria for over time recognition
in ASC Topic 606. Further details regarding our revenue recognition for various
revenue streams are discussed below.
Nature of goods and services
Over 90% of our revenue is derived from services provided to our customers for
training, consulting, technical and other services. Less than 10% of our revenue
is derived from various other offerings including custom magazine publications
and assembly of glovebox portfolios for automotive manufacturers, licenses of
software and other intellectual property, and software as a service (SaaS)
arrangements.
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Our primary contract vehicles are time-and-materials, fixed price (including fixed-fee per transaction) and cost-reimbursable contracts. Each contract has different terms based on the scope, deliverables and complexity of the engagement, requiring us to make judgments and estimates about recognizing revenue.

Under time-and-materials and cost-reimbursable contracts, the contractual billing schedules are based on the specified level of resources we are obligated to provide. Revenue under these contract types are recognized over time as services are performed as the client simultaneously receives and consumes the benefits provided by our performance throughout the engagement. The time and materials incurred for the period is the measure of performance and, therefore, revenue is recognized in that amount.

For fixed price contracts which typically involve a discrete project, such as development of training content and materials, design of training processes, software implementation, or engineering projects, the contractual billing schedules are not necessarily based on the specified level of resources we are obligated to provide. These discrete projects generally do not contain milestones or other measures of performance. The majority of our fixed price contracts meet the criteria in ASC Topic 606 for over time revenue recognition. For these contracts, revenue is recognized using a costs incurred input method based on the relationship of costs incurred to total estimated costs expected to be incurred over the term of the contract. We believe this methodology is a reasonable measure of progress to depict the transfer of control to the customer since performance primarily involves personnel costs and services provided to the customer throughout the course of the projects through regular communications of progress toward completion and other project deliverables. In addition, the customer is required to pay us for the proportionate amount of our fees in the event of contract termination. A small portion of our fixed price contracts do not meet the criteria in ASC Topic 606 for over time revenue recognition. For these projects, we defer revenue recognition until the performance obligation is satisfied, which is generally when the final deliverable is provided to the client. The direct costs related to these projects are capitalized and then recognized as cost of revenue when the performance obligation is satisfied.

For fixed price contracts, when total direct cost estimates exceed revenues, the estimated losses are recognized immediately. The use of the costs incurred input method requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in estimated salaries and other costs. Estimates of total contract costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses. When revisions in estimated contract revenues and costs are determined, such adjustments are recorded in the period in which they are first identified. Revenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods to our fixed price contracts in the aggregate resulted in a net increase (decrease) to revenue of $(0.8) million, $1.8 million, and $1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

For certain fixed-fee per transaction and fixed price contracts, such as for the shipping of publications and print materials, revenue is recognized at the point in time at which control is transferred which is upon delivery, as the over time revenue recognition criteria per ASC 606-10-25-27 are not met.



Taxes assessed by a government authority that are both imposed on and concurrent
with a specific revenue-producing transaction, that we collect from a customer,
are excluded from revenue.
Contract Related Assets and Liabilities
The timing of revenue recognition, billings and cash collections results in
billed accounts receivable, unbilled revenue, and deferred revenue on the
consolidated balance sheet. Amounts charged to our clients become billable
according to the contract terms, which usually consider the passage of time,
achievement of milestones or completion of the project. When billings occur
after the work has been performed, such unbilled amounts will generally be
billed and collected within 60 to 120 days but typically no longer than over the
next twelve months. When we advance bill clients prior to the work being
performed, generally, such amounts will be earned and recognized in revenue
within the next twelve months. These assets and liabilities are reported on the
consolidated balance sheet on a contract-by-contract basis at the end of each
reporting period.

Impairment of Intangible Assets, Including Goodwill

We review goodwill for impairment annually as of October 1st and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. We test goodwill at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. We have six reporting units for purposes of goodwill impairment testing. Our North America operating segment is comprised of three reporting units based on our primary solution sets. The remaining three reporting units are EMEA, Latin America and Asia Pacific.



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Our goodwill balances as of December 31, 2020 for each operating segment were as
follows (in thousands):


North America      $  85,517
EMEA                  26,534
Emerging Markets       8,538
                   $ 120,589

ASC Topic 350, Intangibles - Goodwill and Other (ASC Topic 350), permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. Under ASC Topic 350, an entity is not required to perform a quantitative goodwill impairment test for a reporting unit if it is more likely than not that its fair value is greater than its carrying amount. As a result of our July 1, 2020 segment reorganization, we determined a triggering event occurred and performed a quantitative goodwill impairment test during the third quarter of 2020. For our annual goodwill impairment tests as of October 1, 2020 we performed a qualitative goodwill impairment test and October 1, 2019, we performed a quantitative goodwill impairment test and concluded that the fair values of each of our reporting units exceeded their respective carrying values and there were no indications of impairment. The Technical Performance Solutions and Latin America reporting units had fair values that exceeded their carrying value by less than 5% and 15%, respectively, at the time of the quantitative test performed during the third quarter of 2020. If the Technical Performance Solutions or Latin America reporting units fail to meet their financial projections, or if other adverse market conditions occur (such as a sustained material decrease in our stock price) which would lower the fair value of the business, we could incur material goodwill and other intangible asset impairment charges in the future.

In the quantitative impairment test, we compare the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we record an impairment loss equal to the difference, however, the loss recognized would not exceed the total amount of goodwill allocated to the reporting unit.

We determine the fair value of our reporting units using both an income approach and a market approach, and weigh both approaches to determine the fair value of each reporting unit. Under the income approach, we perform a discounted cash flow analysis which incorporates management's cash flow projections over a five-year period and a terminal value is calculated by applying a capitalization rate to terminal year projections based on an estimated long-term growth rate. The five-year projected cash flows and calculated terminal value are discounted using a weighted average cost of capital (WACC) which takes into account the costs of debt and equity. The cost of equity is based on the risk-free interest rate, equity risk premium, industry and size equity premiums and any additional market equity risk premiums as deemed appropriate for each reporting unit. To arrive at a fair value for each reporting unit, the terminal value is discounted by the WACC and added to the present value of the estimated cash flows over the discrete five-year period. There are a number of other variables which impact the projected cash flows, such as expected revenue growth and profitability levels, working capital requirements, capital expenditures and related depreciation and amortization. Under the market approach, we perform a comparable public company analysis and apply revenue and earnings multiples from the identified set of companies to the reporting unit's actual and forecasted financial performance to determine the fair value of each reporting unit. We evaluate the reasonableness of the fair value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to our total market capitalization, and adjusting for an appropriate control premium. In addition, we make certain judgments in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. The timing and frequency of our goodwill impairment tests are based on an ongoing assessment of events and circumstances that would indicate a possible impairment. We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.



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Accounting Standards Issued and Adopted

We discuss recently issued and adopted accounting standards in Note 1 to the accompanying Consolidated Financial Statements.

Non-GAAP Information This Form 10-K references Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization), a widely used non-GAAP financial measure of operating performance. It is presented as supplemental information that the Company believes is useful to investors to evaluate its results because it excludes certain items that are not directly related to the Company's core operating performance. In particular, we believe that certain gains and charges, such as the gain on sale of business, legal acquisition and transaction costs, restructuring charges and severance expense, while difficult to predict in the current environment, will vary significantly and make a year to year comparison of net income less useful to investors than a comparison of Adjusted EBITDA in understanding the impact of COVID-19 and related effects on our results of operations.

Adjusted EBITDA is calculated by adding back to net income interest expense, income tax expense, depreciation and amortization, non-cash stock compensation expense and other unusual or infrequently occurring items. For the periods presented these other items are stock compensation related to severance, restructuring charges, severance expense, change in paid time off policy, gain on change in fair value of contingent consideration, net, ERP implementation costs, foreign currency transaction (gains) losses, legal acquisition and transaction costs, impairment of operating lease right-of-use assets, gain on sale of business and loss on settlement with foreign oil and gas client.

Adjusted EBITDA should not be considered as a substitute either for net income, as an indicator of the Company's operating performance, or for cash flow, as a measure of the Company's liquidity. In addition, because Adjusted EBITDA may not be calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies.




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                   GP STRATEGIES CORPORATION AND SUBSIDIARIES

                   Non-GAAP Reconciliation - Adjusted EBITDA

                     Years ended December 31, 2020 and 2019
                                 (In thousands)

                                                                     2020          2019
Net income                                                        $  7,068        15,189
Interest expense                                                     2,934         6,058
Income tax expense                                                   1,542         7,180
Depreciation and amortization                                        7,879         9,482
EBITDA                                                              19,423        37,909
Adjustments:
Non-cash stock compensation expense                                  6,256         5,595
Stock compensation related to severance                              1,721             -
Restructuring charges                                                1,387         1,639
Severance expense                                                    9,372         2,232
Change in paid time off policy                                      (1,894)            -
Gain on change in fair value of contingent consideration, net            -          (677)
ERP implementation costs                                                 -         2,188
Foreign currency transaction losses                                    747           718
Legal acquisition/divestiture and transaction costs                  1,922         1,291
Impairment of operating lease right-of-use asset                       255             -
Gain on sale of business                                            (6,064)      (12,126)
Loss on settlement with foreign oil & gas client                         -         2,154
Adjusted EBITDA                                                   $ 33,125      $ 40,923






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