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GP Strategies Corp  (NYSE:GPX)
Q2 2019 Earnings Call
Aug. 01, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the GP Strategies Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Ann Blank, Vice President of Investor Relations. Please, go ahead.

Ann M. Blank -- Director of Financial Reporting & Investor Relations

Thank you. Good morning, everyone, and welcome to GP Strategies' Second Quarter 2019 Earnings Call. On the call today are Scott Greenberg, Chief Executive Officer; Adam Stedham, President; and Mike Dugan, 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 webcast will be available on our website for 90 days following today's call. The slides that are being presented today are also available on the quarterly earnings releases page of the Investors section of our website.

At this time, I'd like to turn the call over to our CEO, Scott Greenberg.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Thank you, Ann. Good morning and welcome to our second quarter 2019 conference call. Today, we will continue to use our quarterly format, which includes a WebEx presentation. Hopefully, you'll find this presentation informative and useful in your analysis of GP Strategies.

To initiate the call, I'll provide a brief overview of the results for the second quarter of 2019. Then Adam, our President, will give key updates on our global initiatives. After Adam's presentation, our CFO, Mike Dugan, will present an in-depth financial analysis, then I'll provide a summary and we will conclude with the typical Q&A session.

This morning, before the market opened, GP Strategies reported its second quarter 2019 financial results. The Company's second quarter reinforces our positive outlook for the future. We are pleased to report both record revenue and gross profit in the second quarter. These results were achieved despite a significant decline in foreign currency exchange rates, which negatively impacted our US dollar reported revenue and gross profit by $2.3 million and $0.3 million, respectively. In addition, we were able to achieve these results despite the lack of a license agreement occurring in our engineering and technical service group, which had a software sale of $1.2 million in the second quarter of 2018.

In addition, with our increased backlog and significant new opportunities, we are seeing our new sales structure gaining traction for future revenue. Our backlog is at approximately $330 million, which is up over 20% from the corresponding period of June 2018. A major positive attribute of our Company is that over 60% of our revenue stream is considered recurring on a year-to-year basis and over 90% our revenue stream is typically derived from customers that we've had in the prior year. While winning a new customer is always positive, our primary strategy is to expand wallet share with our customer base. We currently have approximately 127 of the Global 500 corporations as clients of the Company.

With that being said, I'll turn the call over to Adam.

Adam H. Stedham -- President

Thank you, Scott. We continue to be optimistic about the changes we've made to our sales strategy. Our growth rate is still not at our desired level, but we're experiencing organic growth and we continue to expect that growth will ramp up further. We're pleased with the increases in both the backlog and the pipeline.

Now, a couple of calls ago we shared that we're implementing a new acquisition integration strategy. This approach to integrating acquisitions into the Company is functioning very well for us. The three acquisitions we completed in 2018 are generating revenues well above their pro forma expectations. And we're experiencing cross-selling between historical GP Strategies organizations and the acquisitions. We still need to make more progress on realizing cost synergies within our acquisitions, but the revenue growth is very positive.

Heading into Q3, the previously announced managed learning services contracts will contribute positively to the third quarter and beyond. In addition, we've reached the turning point in which the UK job skills will experience year versus year growth in the third quarter.

I'm pleased to announce a couple of additional wins that we've had since our last call. Our engineering and technical services organization has been selected as part of a team to support the NASA mobile launch platform development effort. This project is estimated to be approximately $25 million in revenue for GP Strategies over the next five years. We anticipate the effort will generate approximately $1 million in revenue in 2019. We've also won a managed learning services contract for approximately $5 million over the next two years to build custom learning experiences for the world's leading social media platform provider.

Over the last 12 months, the number and frequency of multi-year multi-million dollar wins we're experiencing is well above the past several years. Looking forward, these wins should begin to compound to help GP realize the trajectory that we all desire.

Now, within our automotive services business, we're making a significant effort to expand into the European automotive market. Between legacy GP Strategies and TTi, we have significant customers and capabilities across APAC and the Americas. With the combination of the two companies, the 10 largest automotive manufacturers are now clients of GP Strategies. We plan to leverage these relationships to expand our European coverage and give us a truly global capability. Recently, we won a $1 million training development project with a leading German luxury car manufacturer. In addition, currently we have $10 million in proposals submitted as we speak, specifically within the European automotive market. At this point, our European automotive expansion efforts are very much on track.

Now, I'd like to shift the conversation a bit to discuss influences on gross margins within Q2. Mike is going to give more details, but I just want to discuss them a bit and put them into context of the overall business plan. During the quarter, we had an abnormally low number of license sales for software and intellectual property. From a year versus year comparison perspective, Q2 of 2018 was a very strong quarter for license revenues. During the year, the timing of when license sales occurs can shift gross margins between quarters. As a result, quarter versus quarter comparisons could be negatively or positively influenced simply by the timing of when license deals occur in the year.

Now, Scott already mentioned changing gears a little bit, further explaining the gross margin. Scott already mentioned the negative $300,000 influence of currency on gross profit in the quarter. In addition, we're slightly behind schedule on shifting the TTi profitability to match GP's margin profile. But we're confident, more confident than ever, that the margins will be aligned to GP's margin profile by the end of the year.

The new job skills program that rolled out, that we've all been discussing, has a slightly higher cost of sales and an additional audit expense compared to the old operating model. These items reduced the percent margin for this business, but our revenues in Q3 and Q4 for this business will be up year versus year, close to $1 million per quarter, and our sales are continuing to ramp. The business continues to look like a very strong growth business for GP going forward.

Lastly, I want to mention that GP has a significant opportunity within the automotive industry that has arisen as part of the TTi acquisition. In Q2, we incurred approximately $200,000 in losses associated with this opportunity. But we believe the opportunity offers a very positive possibility for our shareholders and that's why we're making this investment, and we're finalizing plans to share more information about this opportunity in Q3.

So at this point now, I'd like to turn the call over to Mike for a more detailed financial analysis.

Michael R. Dugan -- Executive Vice President & Chief Financial Officer

Thanks, Adam, and good morning, everyone. Starting with revenue and gross profit on Slide 8 of the presentation. We reported Q2 revenue of $149.4 million, which is up $15.7 million or 11.8% from $133.7 million of revenue reported in Q2 of last year.

Breaking the revenue out by segment, the Workforce Excellence segment reported Q2 revenue of $81.1 million, which is down $1 million or 1.2% from the revenue reported in Q2 of 2018. The revenue decline is due to a $1.7 million decrease as a result of changes in foreign currency exchange rates. Partially offsetting these foreign currency headwinds was a modest -- was modest increases in revenue for each of the two practices in this segment. The MLS practice contributed a net increase of $0.5 million, primarily due to a $1.6 million increase from the IC Axon acquisition, which was completed May 1, 2018. And this increase was partially offset by a $0.2 million decrease in vocational skills training services provided to the UK government and a net $0.9 million decrease in revenue for managed learning and training content development services. The ETS practice contributed a net increase in revenue of $0.2 million, primarily due to a $1.5 million increase in disaster recovery services, a $1.3 million increase in chemical demilitarization services for the US Government. And these increases were partially offset by a $1.2 million decrease in our energy services business due to software license sale that during Q2 of '18 that did not repeat in 2019, and a net decrease of $1.4 million in other engineering and technical training services.

The Business Transformation Services segment reported Q2 revenue of $68.4 million, which is up $16.7 million or 32.4% from the revenue reported in Q2 of '18, bridging the revenue drivers in the BTS segment. The sales enablement practice contributed a net increase in revenue of $17 million, primarily due to a $14.3 million increase due to the TTi Global and TTi Europe acquisitions, which were completed in 2018, a $2.7 million net increase in automotive automotive sales training services, largely due to new vehicle launch events for automotive clients, and a $0.3 million net increase in our organizational development practice, primarily due to an increase in strategic consulting services, which was partially offset by a decline in human capital management system implementation services.

The revenue increases in the BTS segment were partially offset by a $0.6 million decrease due to changes in foreign currency exchange rates. Within this segment, the sales enablement practice had revenue in Q2 of 2019 that included $8.6 million of publication revenue, which was $0.4 million more than the publication revenue recorded in Q2 of last year. We are projecting publication revenue in Q3 of 2019 to be $0.7 million compared to $1.6 million in Q3 of 2018 as the delivery of a fall publication is shifting into Q4. Overall, for the year, publication revenue is forecasted to be $23.5 million versus $24.2 million in 2018.

In terms of gross profit, we reported Q2 gross profit of $23 million, which is up $0.4 million or 1.7% from the $22.6 million in gross profit reported in Q2 of '18. The Workforce Excellence segment reported Q2 gross profit of $13.4 million, which is down $1.5 million or 10.3% from the gross profit reported in Q2 of '18. Primary drivers of the decrease in gross profit are due to a $1.2 million decrease in gross profit in the ETS practice due to a software license sale in our Energy -- previously discussed, that did not recur in 2019, a $0.3 million decrease in gross profit in the MLS practice, primarily due to the decreases in revenue previously noted, as well as changes in foreign currency exchange rates.

The Business Transformation Services segment reported Q2 gross profit of $9.6 million, which is up $1.9 million or 25.1% from the $7.6 million of gross profit reported in Q2 of '18. Gross profit increases in this segment were primarily due to the gross profit contributed by the TTi acquisition and the increases in revenue noted above.

Moving on to Slide 9. For some insight on the year-to-date revenue, after stripping out the impact from the foreign currency headwinds and including the performance of our recent acquisitions above what was projected in the pro forma financial statements at time of purchase, our organic revenue growth year-to-date is approximately 2.5%. While the year-to-date organic growth is not yet at the targeted rate of 6% that we announced at our Investor Day last year, the trend has flipped from a negative organic growth rate for 2018 to a positive increase of 1.5% in Q1 and a 3.4% in Q2 of 2019. As we look forward, our strong proposal pipeline and contract backlog would support the trend to continue to move toward our targeted organic growth rate.

Moving on to SG&A expense on Slide 10. General and administrative expenses are up $1.3 million or 9.1% quarter-over-quarter. Primary drivers are a $1.5 million increase in G&A, including amortization from the TTi acquisition. Offsetting these increases was a net $0.2 million decrease in other G&A expenses. Q2 G&A includes $0.4 million of non-recurring legal expenses and $0.5 million of continued ERP stabilization and optimization support incurred during Q2 related to the new financial system. We do expect to incur approximately $0.4 million of ERP expense per quarter for Q3 and Q4 as we seek to finalize our optimization plan for the ERP platform.

Sales and marketing expense for Q2 was up $0.8 million quarter-over-quarter with the driver being the investment in business development personnel, inside sales and the centralization of our account management program.

Moving on to other P&L items on Slide 11. We've incurred restructuring charges of $1.3 million year-to-date in 2019, which is associated with the TTi integration. This compares to $2.9 million year-to-date 2018 in connection with prior reorganization and related cost savings initiatives. In Q2, the gain on change in fair value of contingent consideration was $0.6 million. As of June 30, 2019, there are no more contingent consideration liabilities on our balance sheet. Interest expense is up $1.9 million, with $0.9 million due to higher borrowings and interest rates under the credit facility and $1 million due to a non-recurring reversal of a VAT-related contingent interest expense in Q2 of 2018. Other income has a $1.1 million improvement quarter-over-quarter, primarily due to lower foreign currency losses in Q2 of 2019. And finally, the effective income tax rate year-to-date was 28.9%, which is in line with what we are projecting for the year.

Moving on to the earnings summary on Slide 12. Net income for Q2 was $3.2 million compared to $3.6 million in Q2 of last year, and diluted earnings per share for Q2 was $0.19 compared to $0.22 in Q2 of last year. For details on adjusted EPS and adjusted EBITDA, you can refer to the Appendices at the end of this presentation.

Moving on to some balance sheet drivers on Slide 13. Free cash flow year-to-date is negative $7.3 million. The primary driver, as mentioned in prior earnings calls, has been a delay in billings related to the disruption from launching the new Oracle financial system. In Q2, we moved this delay one step closer to cash as unbilled revenue at June 30 is down $8.4 million compared to year-end 2018, and AR is up $11.3 million. While the billings push in Q2 did not convert to cash in Q2, as of July 29, our cash balance was $15.7 million, which is up approximately $10 million from the balance as of June 30. While there may still be a minor amount of cash tied up in delayed billings and AR, we feel confident that the bulk of the impact on cash flow related to the new financial system will be behind us as we end Q3 and certainly going into Q4.

Turning to backlog on Page 14. Backlog as of Q2 2019 was $330 million, which is up $63 million or 23% compared to $268.8 million of backlog at the end of Q2 2018. Excluding the TTi backlog of $31.7 million, backlog is up $32 million or 11.9% over Q2 of 2018. Approximately 90% of our backlog will be recognized as revenue within the next 12 months.

This concludes the financial update. I'll turn the call back to Scott.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Thank you, Mike. As you heard from Mike and Adam, we are making progress in achieving our long-term objectives. You've heard about the continued integration of TTi and new outsourcing awards that will begin generating revenue in the second half of 2019 and beyond. Mike also gave details of expenses impacting G&A and how we expect that to trend in the future. As far as the Company overall objectives, the major priority is strengthening our balance sheet and improving our leverage ratios. This will be accomplished in three ways. One, generating free cash flow to reduce debt. Two, increasing EBITDA. And three, sale of selected non-core assets to reduce debt. We would like to enter 2020 with a stronger balance sheet going into the year.

With that, moderator, I'll turn it over to the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Jeff Martin with Roth Capital. Please go ahead.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Thanks. Good morning, guys. How are you?

Scott N. Greenberg -- Chairman & Chief Executive Officer

Good morning, Jeff.

Adam H. Stedham -- President

Good morning.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Congratulations on the NASA project win.

Adam H. Stedham -- President

Thank you.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Can you give us -- Adam, could you give us some insight into how that's going to roll out in 2020? It's a relatively small impact this year, but seems like it will ramp next year. And how that -- what the margin profile of that project is or how it will affect your gross margins?

Adam H. Stedham -- President

So, yes and -- yes and no. So the margin profile of that is aligned with traditional GP margins. It doesn't stand out one direction or another. The nature of the project is the beginning of it you put together a design plan and all of that, that's how we know the revenue stream between now and the end of the year is because we're doing design and planning. The reason we have not press releases yet is because we really feel that we need -- before we press release this, we need to understand that design plan a little better because that will give us the revenue stream and the revenue flow looking forward and understanding where that will hit. So we're not at a position right now to say one way or another.

I will say, this is not one of those efforts where you expect to have it be very, very lumpy. It's all going to hit in one place. I mean, there is work that's divided over the length of this project. But specifically how that's going to land, we'll know more after we do some of this design phase and going into the quarter.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Once it ramped up, it should be -- it should be evenly spread on a quarterly basis.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Okay, great. And then in terms of the margin expectations for the balance of this year, it seems like you're pushing out toward by the end of the year versus during the second half in terms of the margin improvements. And it sounds like some delays with the TTi margin improvement are impacting. I was just curious if you could comment on that in terms of timing and scale.

Michael R. Dugan -- Executive Vice President & Chief Financial Officer

As Adam mentioned, we're rolling through the transition with TTi and we expect that to be by the end of the year, in line with the rest of the margins. And Scott...

Scott N. Greenberg -- Chairman & Chief Executive Officer

Yes. Hey, Jeff, when we announced the acquisition of TTi, we expected a run rate EBITDA of about $3.5 million a year based upon the $50 million of revenue plus that they were adding to our results. We expect to be at that type of contribution by Q4 on that.

As far -- as far as other margins, you could see that when we talk about the license deal of being in last year's results of $1.2 million, that directly went to the margin. So last year's profit margin was positively impacted by close to 1% from their license. Depending on how Adam mentioned how the license falls, that will have an impact as well. But overall, on our general business as some of our initiatives roll in, and TTi improves, our margin profile should be improving by the fourth quarter.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Okay. And then that relates to my next question on the license deal upfront. Do you have any visibility into timing and magnitude of potential license deals for the third and fourth quarter?

Scott N. Greenberg -- Chairman & Chief Executive Officer

Yes. I mean, again, we're just starting the quarter. We know of $300,000 of license deals in one of our groups in the quarter, and we're working on others. But as far as closing, we already know of $300,00 that's going to hit Q3. Adam, do you want to add anything?

Adam H. Stedham -- President

No. That's exactly right.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Okay, great. Thanks for taking my questions.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Thank you, Jeff.

Operator

Next question comes from the line of Alex Paris from Barrington Research. Please go ahead.

Chris Howe -- Barrington Research -- Analyst

Good morning, everyone. This is Chris sitting in for Alex.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Hi, Chris.

Chris Howe -- Barrington Research -- Analyst

Hi. Just had some quick questions here. Following up on the last question about the NASA contract, the ramp there. How would this contracts compare as far as the size of the deal, the length of the contract, to what you're experiencing or what you're seeing in the remainder of your backlog as it starts to convert?

Adam H. Stedham -- President

Yes. I mean, when you look at our backlog, how GP Strategies measures backlog is funded backlog. And even though we have many long-term contracts, we're just putting in the amount currently that's funded. So typically over 90% of our backlog revenue is occurring in the next 12-month period. A longer-term funded contract like a government job like this would be more of an outlier for us and more unusual than compared to most of our other backlog in our commercial industries.

Scott N. Greenberg -- Chairman & Chief Executive Officer

And just to be clear, that contract is an announcement of award. We do not have that contract in backlog in our reported numbers for Q2, even the one year portion of backlog.

Chris Howe -- Barrington Research -- Analyst

Okay. That makes sense. And then as far as the $5 million managed learning services contract, how should we expect that revenue to accrue for the remainder of the year and into 2020?

Adam H. Stedham -- President

It is flat. It's basically just straight line.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Now, one thing -- the one thing about the managed learning service contract is if you look at the history of GP Strategies, when we get a managed learning services, the hope is that -- and you bring this customer in to do that work, the hope is that you're to able expand managed learning services into different areas of content development, leadership training, things of that nature. So we're hoping, just like most of our managed learning service contracts, that this revenue is just the entree into their client and the tip of the iceberg, and we'll be able to significantly grow it like a lot of our large customers in this arena.

Chris Howe -- Barrington Research -- Analyst

Okay, that's helpful. And then as you grow, that brings me to a question about wallet share. Can you provide some color on how you did in the quarter in expanding that wallet share within existing accounts? And the 60% of reoccurring revenue, that should grow over time, correct?

Adam H. Stedham -- President

Yes. It's -- the goal is for that to grow over time. I would say that, overall, from a wallet share perspective, we're doing well -- we're doing it well across most industries. The one area that we're looking to focus more aggressively on is financial services in terms of wallet share improvement there. We're not getting the wallet share improvement in financial services that we hope to get and that we're planning on getting. So we're making some changes and shifting our strategy there. But in the other key markets and key segments that we've identified within our strategic plan, our wallet share growth is doing well.

Scott N. Greenberg -- Chairman & Chief Executive Officer

And that's why, Adam brought up the fact in the automobile industry, which is our largest single industry in the Company, we are now currently dealing with all 10 by unit manufacturing volume of the largest manufacturers in the world. And if you look at the amount of money we're doing with them, it's really only a small percentage of their overall wallet spend. And with everything that we're doing there, including we won General Motors Supplier of the Year award, we're obviously hoping to expand in this practice as well.

Chris Howe -- Barrington Research -- Analyst

That's all the questions I have for now. Appreciate the color. Thank you.

Operator

[Operator Instructions] The next question comes from the line of Zach Cummins from B. Riley FBR. Please go ahead.

Zach Cummins -- B. Riley FBR, Inc. -- Analyst

Hi. Good morning, everyone.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Good morning.

Zach Cummins -- B. Riley FBR, Inc. -- Analyst

Just expanding more on your focus on the automotive sector. So you're really trying to expand into Europe at this point, over $10 million in proposals right now. Can you give us an update on what stage you're at in these proposals and maybe when you'll start to be getting some decisions on some of these proposals?

Adam H. Stedham -- President

So it's various stages, so it's multiple proposals they're all in various stages. They're all actually -- once they're at their proposal point, they are within a decision within the quarter. So we should -- we anticipate hearing the decisions on all of those by the quarter. There's a couple that could slip if the deadline slip. But we anticipate hearing on all of them. So we -- in addition to that, we have some upfront business development activities. But for us to say that we have a proposal, that means if there's a specific job that they are looking to have done or a specific project that they are looking to have done, they have already put a tender out requesting quotes to complete that scope and we have submitted a tender on that. So I would expect for the majority of that we would know by the end of this quarter the results of those proposals.

Zach Cummins -- B. Riley FBR, Inc. -- Analyst

Understood, that's helpful. And then just going back to the E&TS software license sales. So you had $1.2 million that did not repeat in 2Q of this year. Is that a portion of business that was just one-time in nature? Or is there a potential chance that this is coming back into the pipeline at some point later this year?

Adam H. Stedham -- President

So I would say that we had a we had a large license sale, Q2 of last year, which when they hit, it's very positive and it's abnormally positive, and that happened in the quarter of last year. They don't happen every quarter and they're difficult to predict when those large license sales will come in. With that said, we have a many year track record that a large license sale does come in. So, it's kind of you're out there fishing, most of the time you don't catch a really big one, but you have a track record that a big one is going to come in. It's really the nature of the size of the facility that is looking to implement our software causes the price to go up. So there are many other customers still available out there. The marketplace is rich with opportunities for license sales of that size. It's just difficult to predict when they're going to come in.

Scott N. Greenberg -- Chairman & Chief Executive Officer

The one thing, though, if you look at the history, Zach, most of the quarters when we had license sales or -- if you had to normalize it, I would say they are more in the $400,000 to $600,000 range. So when you looked at that $1.2 million, that one was abnormally large for GP Strategies. So while it is a reoccurring type of transaction, typically we would expect $400,000 to $600,000 in the quarter, not $1.2 million and not very minimal as well.

Zach Cummins -- B. Riley FBR, Inc. -- Analyst

Got it, that's helpful. And then in terms of the UK job skills practice, it sounds like that should hit the inflection point and return to year-over-year growth in both Q3 and Q4. But can you talk a little bit more about the changes in the cost structure there and how we should be thinking about the incremental contribution at gross margin here in the second half of the year?

Adam H. Stedham -- President

Sure, I would -- so the change in the cost structure is simply that we -- there's a new audit requirement that is included that has to happen externally. So you have a third-party audit that you have to fund that adds to the cost structure. In addition to that, with the business, now we've added a sales team to that. So really net-net, what we're looking at between the cost of sales and this audit function, currently we're experiencing probably a 10% shift -- 10% impact on our gross margins. This was our most profitable line before. We have plans in place to get that down to a lower number, say maybe 5% impact on the gross margins, at which point this will still be one of our highest gross margin businesses in the whole Company. It just won't be at the level of the gross margin it was before.

Scott N. Greenberg -- Chairman & Chief Executive Officer

And if I could add something to the overall skills funding and what's occurred. If you go back two years, 100% of our revenue -- close to 100% of our revenue was derived from smaller companies where we did things like home healthcare and child care. And then when they changed the rules to make small companies pay 10%, we had to pivot and go into large companies and get a offering for them, which we've accomplished. So now, today, approximately 50% of our revenue is being derived by large companies and 50% is being derived by small companies. We have seen an uptick, however, in small companies because in April they lowered the co-pay from 10% to 5%. It's not at 0% yet, but they have lowered it from 10% to 5%. So what we're seeing is a combination of the small providers now coming back, but now we have a new offering [Indecipherable] lot of providers that are gaining traction as well. And with those two together, that's why we feel pretty confident that our revenue stream would start growing in the third quarter and beyond.

Zach Cummins -- B. Riley FBR, Inc. -- Analyst

Understood. That's helpful. And then, Scott, just final question for me. It seems like one of your bigger priorities in the second half of the year is really strengthening the balance sheet. Can you talk to what sort of long-term leverage ratio we should be thinking about for this business, where you would feel comfortable kind of operating going forward?

Scott N. Greenberg -- Chairman & Chief Executive Officer

Yes. I mean, Mike and I agree 100% on this one and we would like to get it down long-term below -- two [Phonetic] or below.

Zach Cummins -- B. Riley FBR, Inc. -- Analyst

Understood. That's helpful. Well, thanks for taking my questions and best of luck in second half of this year.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Thank you.

Operator

This concludes the question-and-answer session. I'd like to turn the conference back over to the presenters for any closing remarks. Please go ahead.

Scott N. Greenberg -- Chairman & Chief Executive Officer

Thanks, moderator. We do appreciate you joining the call today, and we look forward to updating you at both investor conferences and on our next quarterly call. So, again, thank you very much.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Ann M. Blank -- Director of Financial Reporting & Investor Relations

Scott N. Greenberg -- Chairman & Chief Executive Officer

Adam H. Stedham -- President

Michael R. Dugan -- Executive Vice President & Chief Financial Officer

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Chris Howe -- Barrington Research -- Analyst

Zach Cummins -- B. Riley FBR, Inc. -- Analyst

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