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GVP GSE Systems

Participants
Devin Sullivan -
Kyle Loudermilk CEO
Chris Sorrells COO
Emmett Pepe CFO
Call transcript
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Operator

Greetings and welcome to the GSE Systems First Quarter 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Devin Sullivan. Thank you.

You may begin.

Devin Sullivan

good and Matt, you, afternoon, everyone. Thank for you joining us today. Thank

as could, considered will, results. I could and words of Before statements mean of guarantees These may, and concerning uncertainties remind be Act actual the of absence statements, would similar that forward-looking. Section the everyone These amended, of are XXA begin, Words anticipate factors not risks achievements of this or performance statements events not should, and but expect, Section future meaning future that may XXXX materially other important course expressions, to XXXX. Securities performance intend, the used the to expectations like a we believe, does Securities cause forward-looking reflect not of projected. be of within are are statement such and is current to during that statements call those and and different are as identify statements forward-looking to XXE their made from subject Act

by information to for accordance Regulation release. accordance supplemental of events GSE operational that to to under or which substitute superior employee its financial certain otherwise. in results. uses reconciliation EBITDA, and most risks, and periodic Statements refer statements, measures future evaluating other in other full and EPS, to GSE's and Risk both not well of of may are regarding similarly On planning, not compensation Forward-Looking measures the and these prepared management internal This earnings comparable make information their non-GAAP measures historical finds Exchange Chief of may GAAP. competitors. and including these forward-looking and U.S. Mr. operating these titled of results Generally performance over be forth with the measure Officer GAAP update file to as uncertainties of allocation. documents or and Kyle, any net this to non-GAAP With GSE company's operating should under performance. management a addition For measures, Investors might Loudermilk, to, figures, measures Management the non-GAAP GSE's such companies. GSE Accounting as encouraged Securities performance go Since performance Systems. decisions factors, A Factors please that budgeting, company's be businesses meaningful does or GAAP as revise you income in provide result the should the with to to benefit evaluate information, the recognize new Accepted adjusted for G can EBITDA, set These now any those comparable facilitates of Commission, section. of reports believes that SEC these to a the operating figures measures non-GAAP read Kyle GAAP Principles, measures as these with that like GSE's in adjusted Management believes call, filed non-GAAP or addition resource results, discussion to intend in useful, whether GAAP. of investors a to measures as are turn not to call comparisons adjusted on said, in management's found I'd considered not ahead. Executive be

Kyle Loudermilk

we our a Hopefully, quarter website copy XXXX at you this call. quarter Officer. are Earlier review news found Sorrells, and everybody like under today's afternoon. our to Devin, if our results release Chief Systems GSE’s GSE Chris call you'll issued Financial covering Emmett had conference not, on release, News welcome Also on Pepe, Operating Officer; section. XXXX I'd to but chance good first today, Thanks, a www.gses.com to financial and have press results. can first Chief the a be

other the less specialized Consulting nuclear a deal Absolute and also adds we're million really United imply But leverage key our talent for quarter highly specialty relationships years. ASME Before acquired a of yesterday. Chris let heels and XI, in-service of True True platform with expertise True I pool GSE. for provider ecosystem North and in which software nuclear the solutions energy consolidating some expect advances as broadens provide employee believe to the accretive developed True founding first of with thermal areas our touch of purchase North bit North vision M&A additional services a vendor our power GSE's earnings than reiterate progress a XXXX, my we which XXXX XX like on in months of thoughts on I’d towards several and opportunities True North and our later. ago company's more ASME this represents True to annual on within testing OM we power. on adjusted In Section This to balance financial potential the nuclear acquisition North on another million plant as with code, complimentary Consulting will highly for EBITDA North States, specialty performance, in-service XX industry. highlights, Since like announced GSE base. a an share transaction compelling milestone regarded and our delighted the in of with me portfolio, of solutions. engineering exciting in between engineering acquisition strategic a has North to objectives such strategy its engineering comes for adjusted emphasis The We X programs, programs acquisition follow. the providers our engineering to fit color including is our tremendous three inspection expands largest fragmented that True

our us XXXX Given help the current can of we maintain goals. we achieve pipeline, vision remain cadence acquisitions confident appropriate to an

our highlights. XXXX to on financial first Moving quarter

and For $XX.X XX% QX increased totaled a strong XXXX gross year-over-year. produced We XXXX. order profit over increase XX% which quarterly is our respectively revenue million XX% and QX

million million Total backlog end the quarter consulting. training solutions strong $XX.X industry of and backlog improvement Our of at end $XX.X nuclear million consisted remained at XXXX. $XX.X to of performance and million of compared $XX.X

as these this we EBITDA believe provide expect we the a to subcontract EPC better a orders addressed While expected. two million and specialists, laboratories Emmett nuclear continuation slower as were continuation adjusted his the across experience of goes that subcontract, a customer variety to to we've the long-standing prominent do build Navy's devices This will program. of and solid, than backlog. engineering dedicated test for of U.S. color will back U.S. issues test large more Net, of years. and one-time a supporting or provide quarters. is results we continue we XX in a more support did our government the over to to section. GSE's GSE see Under adds trading net number two relationship locations. next our The results Among government company quarter, services approximately X used February simulation and on X contract well commenced than

backlog. could four $XX which a not value the in of Assuming our the of million, contract years, total optional is remainder continuation approximately included of another have

In deals investing addition, wins These These X additional from on QX we corporate in our are our and in XXXX closed yet QX operationally China and by focusing worth on and reflected two therefore in we're our our announced not driving strategy. backlog, results. EBITDA million. orders development revenue are projects heavily that approximately significant nuclear sales GSE a In for power. today is growing for in conclusion, in executing two our country effectuating

over - go up healthy ahead. the Chris, and to start team we’re Our XXXX. our the Sorrells, over our Chris year now turn fired please whole growth optimistic in is for COO. to I'll call

Chris Sorrells

I’ll some North. additional True Kyle. with Thanks begin on comments

high very to add EBITDA are specialty its is a the We requirements approximately engineering well-respected to free EBITDA low business. with flow True XX% company True high North to margins conversion GSE's of of of a well-run CapEx given excited rate platform. cash North with

to million North annual our to synergies after $X anticipate immediately purchase add It True be EBITDA GSE's True our and will earnings adjusted diluted North backlog. are We for of accretive retention approximately approximately expect add $X.XX a due close also to it work. company million $X per for we We hold would and share implemented. adjusted to attractive difference identified technical nature escrow and million million purposes. cash to with its entry the barriers $X.X complex and approximately price high an leadership in million We indemnity at in paid $X.XX to for

in decades. has which North a as country's the engineer XX% with owner base True the only that will True company. approximately of some spends but North's accounts True office several mostly services very for its largest and proven their fortunate nuclear former which stay integration and fleets. team. to Horn our customer running confidence it's a designated XX% founder that for is and for specialty business is we gained development XX% North's of their and He is of with has with leadership track back approximately and record Don fossil well-known is largest coordination as choice the it typical customer two the agreed Don business Regarding industry our continue have utilities low with with of retention, are revenue new

logo. with the name the are given recognition acquisition each the We brand its beneath to each True a North company each brand mark within GSE With keeping industry. is plan

instance So about in company. are we talking GSE this a North, True

solutions expect see prepared plan It performance with XXX the part a improvement on transaction North We the second close, in to of May GSE. quarter the as we acquisition to integrate will North from True to be True closed financial beginning the XX. our Prior segment. impact detailed day

significant. X.X we to million fits that to Consulting swiftly stated annual quarter. adjusted revenue plus putting of North and added strategic and well have our EBITDA our the integrated forma of for True million LTM exceed million revenue in and margin to to XX respectively. provide to LTM ensure like million True a business. perspective, meaningful with True North at X fully progress by acquisitions XX pro growth now annual the That’s will accretion. opportunity GSE's of our in attractive I'd plus cash million Absolute adjusted EBITDA We purchased X.X move is third North eight adjusted both prices. goals and months and million safety good the multiples and point out to X company's with through that M&A external back XXX last in Stepping EBITDA into and We X

after very with Even deals. cash. purchase balance approximately in sheet million remains at are XX We True of pleased Absolute and these the our strong North,

evaluation. strong Our to pipeline currently execute positions and under the deals pursue of liquidity well on position us

to efforts track remain more close to at year. Our this on hopefully least M&A continue and one advance we favorably deal

valuations own our additional like investors we As deals opportunity. reoccurring as creation envision we consummate an in value North, our we capitalizing realize True that uptick are

Our components. four staffing remain unchanged, and value-added solutions, target areas engineering, technical consulting, software

to As ROIC capital. we our will criteria cost IRR M&A transaction with remain investors always and stated our on very ensure provides each that asymmetrical publicly an risk focused our reward, attractive exceeds that of for

plants Let Creek In plant news. and development electricity bolster April, energy keep generated by Seabrook standard Seabrook, state's briefly Nuclear Hampshire resources on its only also zero Hampshire's NextEra's paradigm the the that an April, than a New closure. lawmakers legislation industry as aiming draft industry the in in Minnesota, half me XXXX Hope premature nuclear emissions. standard manage approved the PSEG, subsidies In as states bills gases. facing would more includes that of estimated renewable issued recent strategy limiting Legislatures in provide million Pennsylvania and Ohio to provide in state's some renewable positive power to a New continue open preserving XXX shift greenhouse also recommending plant support Jersey Salem way conclude carbon portfolio an touching annual State nuclear for to optimal to that Plant. New to nuclear Nuclear emission energy such and

the the free evidence We Emmett I’d increasingly states reliable of baseload source results. who value carbon continue that, to electricity. review it to first see With safe quarter to turn nuclear financial are of that recognizing over like a will as

Emmett Pepe

new Thank a you, begin Chris. review will business. of I with

included is segment two Solutions in of million orders Improvement support to Solutions totaled bookings result services detailed Performance The contract in Industry XXXX. compared $X.X a laboratories $X.X million $XX.X in prominent million in in U.S. Training Consulting Consulting provide previously. in Our to QX large engineering Kyle XXXX. orders QX XXXX, to and of Nuclear compared $X.X million orders totaled the QX, QX, $XX.X XXXX. to QX, XXXX increase that Performance million Absolute government

continued our this two result customers. significant of Our strong segment order is performance work the in at

revenues financial our in Industry XX.X% $XX.X XX% XXXX rose reflecting increased Consulting. million Performance XXXX. from million $X.X in million X% Absolute revenue QX, QX, of increased QX, $X.X revenue and in $X.X full Training in to for Now from $XX.X quarter. XXXX to on XXXX QX, of million to a Solutions from quarter XXXX results in XXXX. review million Consulting Nuclear QX, in the Total from revenue Improvement to QX, $XX million

expected lower the revenue the from from key XXXX These recognition of or Our one in next in more large increased modest - resulting year-over-year better delays profit Improvement delays or see a to of million Performance Solutions we partly our XXXX. million and resolved increase revenue than profit. approximately QX modest by delaying million quarters. XX.X% $X.X revenue vendor XX.X% importantly be of favorably to $X.X two QX, and us in over of $X.X results associated segment XX.X% believe in of We projects. is driven in should Gross

QX, the For gross segment X.X in gross QX, Consulting QX, million QX, XXXX. resulted XXXX. XX% compared the totaled The XX.X% Industry for SG&A contributed increased acquisition of the of gross expense Nuclear XXXX. increase profit and scale demonstrate million increased segments X% from segment, XXXX. profit Training to XXX,XXX Consulting in operating from XX% million Training in in profit Performance in million QX to the from XXXX to QX, the we decrease $X.X business. Industry effects begins to of XXXX which contributed million $X revenue or Nuclear and X.X XXXX million expenses as of XXXX The in to percentage The Absolute XXX,XXX Absolute SG&A leverage or revenue SG&A the Improvements $X.X Consulting expenses. QX QX, Consulting to $X.X

loss and per largely incurred XXXX provisions which net QX allowance, for impacted in a our Net basic higher backup form and XXXX we and result valuation XXXX. or is fees tax chose our in $X.XX addition, XXX,XXX compared to new the professional contributed or to adjusted revenue of given EBITDA approximately reform and release approximately our add fees. one-time XXX,XXX not to million work of related standard was to higher international In largely per those of of $X.XX ongoing $X.X The year-end we as the to loss in to uncertain share QX of of result certain restructuring loss diluted in share diluted tax contingencies. tax accruals due QX QX XXX,XXX effort basic which positions our expense XXXX of related tax accounting

the positive projects revenue efforts XXX,XXX financial largely EBITDA fees. eager increase to QX Non-GAAP XXXX. QX of QX mentioned was The be are is our the and a to of $X.X in largely planned million as one previously two professional restructuring EBITDA defined due delay the larger delay end in the earnings compared by in decrease are items of approximate of in which We in for recognition XXXX. XXX,XXX realize an our resulted completed one-time effects of which release to approximately approximately to our XXXX adjusted largely

at Our XX, million million March to compared cash XXXX. at $XX.X December $XX.X totaled position XX, XXXX

As of delays mentioned larger caused as XX. our the in one projects March temporarily previously, cash decline of in

of the cash approximately As to these acquisitions reached of such any year. return completion end quarters, next to our levels over new cash by operating expect projects of normal excluding the million the uses position XX cash we as of two

credit past acquisitions XX close. we drew acquisition term As line five-year Chris the XX approved Credit of in since million Interest strategy. facility floating to the and now applicable in Bank fact with based rates million turn the Citizens. by points this depends few to We an revolving XXX specified I’ll a noted on True of in the delayed Amended X Restated fund do draw on million leverage plus consisted down loan fund approximately entered Citizens on turnaround five-year as LIBOR a and North the May agreement. Agreement back GSE XX, conversation at XXXX into how which of between XXX growth basis The GSE Kyle. years can that initiated margin far come to to demonstrates management has thresholds

Kyle Loudermilk

for please the questions. Operator, floor Emmett. Thanks open

Operator

[Operator Kaplan] [Lawrence is go from first Instructions] Please question Management. ahead. Our from LK

Unidentified Analyst

quarter and acquisition. the on True on Congratulations the North

Just that growing North? North in is is acquisition, North a company question I a does million True True future a it, we a the EBITDA of mean with million should on sales. What True stable of company, the just couple expect and $XX

Chris Sorrells

and you of it’s GDP like U.S. Yes, if a nuc domestic it mean nuc, think industry. I generally company it’s grows that’s a

is say the to has years here percent better as specialty to five, engineer new North driven of they over than of done past the in I typically or become little for entrusted two in couple nuc said two mostly True couple choice a So see. pretty what of which these might opportunities comment were two prominent my the in by years you four past that players.

that that past about picked deliver. we to of us, talk over prefer years. two Larry, or really to When know it you the it things tend over three call up So under-promise, kind we

transaction the So be what bought, case, that we're we should the looking is happy, gravy. we get we at the that is what is upside on accrues anything if

Unidentified Analyst

shortfall in There and I and out to involved there EBITDA balance get this appreciate really of feel to problem confusing the company? the people you're you what I'm we is you - and new out are do the the get the expect very get what are issues to with going story expect the people think will what just And revenue - and just get is growing. somewhere this don't wondering with timing we say affecting acquisition the what least right course part the for do is do of why and confusing that that's think story the how Also year. EBITDA the more about now you and the I adjusted

Kyle Loudermilk

high take A out two were follow-up. can of these loss, profit the Chris, mentioning from level the breakdown an you first of a the we side, opportunity not and that’s Emmett I’ll question timing projects not on just Larry shift a maybe issue. loss EBITDA large it impact the money that's I’ll that's

that items expect based to other and comes bit little highlighted fully get we when call. chop the of in that So a on milestones project in we and that so

here North really woodwork highly serve the specialized I story of out services highly need out we’re platform. a us of fragmented the of and a of to It’s a the serve seen nucs able as high see related compelling nuclear. player and our are vendors. opportunity very not highly movie market ahead with and can base by our nuc It’s to Second new to GSE is, excited absolute industry a a pop True pull entities with pipeline. platform our question of have that part excited market, and And to leverage technology concentrated by highly being concentrated before between any on that playing we ecosystem

the further the operate get things strategy, if do. our our other out story the we know feel are the you comments. look in business, that we any we conferences right So those on control Chris things, execute do can through that investor

Chris Sorrells

job with the the a one-time items had we XXX,XXX, the I lost things XXX We delivered nice professional to fees. we kind explaining Emmett of truly Larry. guess clarification did two

new standard that revenue mean of aware very I a the and expense was involved probably XXX, process. You’re

to went but adhere a some the things Cuts XX, that money assets and the that cost into the not that year effective every important and there a tax Act Tax to, work that to tremendous thing and was in mean this deferred tax impacts first. that corporate of The see Jobs and had generational thing, I into saw is equally rate go of in bad really don't a We there you and is to XX% from money continued quarter fourth the that. You

but getting And with that reasons was largely EBITDA. and XXX,XXX-ish there driven XXX,XXX pushed about supplier the projects then EBITDA. they - were was that So went mean there right multiple of to

been quarter versus have great talking you're million looked that year-over-year that million $X.X good. a a and now that a X.X would So would have

hundred So unfortunate we Is that's and to hit. kind we'll We regularly too its We the year-over-year that’s that we probably added think quirky another of you kind that’s company. do. some gone. comparison. and when one-time go spent that things we but Do of There it up XX get XXX, got things up public in didn't highlight were other XXX? no necessarily to couple

yes and it I So with got we mean said excited of what Kyle see at as good super we us. when we’re disappointing, ahead you look but explanations

Unidentified Analyst

ready mention rate or would rewarded. give for projections that the $X.X quite the for was year, was $XXX you Are how some that like or the year that I run to this start million to is and you million, wasn't sure of

Kyle Loudermilk

It’s XX trailing a months.

numbers Larry, we time, not to it's on at So any forward sense of when what's just don't look going people guidance at that basis a guidance to but give least this like give give we’re trailing going to we a on.

Operator

comments to And Instructions] any you are closing [Operator have questions no further there make. do if

Kyle Loudermilk

that hope No, about on with many Micro onto joining first calendar at thanks upcoming here week of going months very Really coming conferences. so to share investor everyone speak Closing with to come our that’s our to reiterate June in everyone we’re you great. LD In and And be the summer continued say of with and will meet improvement. have unfolds. excited us. have the Los progress. get to the progress chance like We’ll on the pleased our as Well, I’d some especially some will others Chris and focus glad out what's we for Angeles there. in be

in thanks GSE. like you your time with everyone So interest I’d and to thank for that and

Operator

teleconference. today’s This concludes

lines You participation. your for Thank time. this may you disconnect at your