GVP GSE Systems

Kalle Ahl The Equity Group
Kyle Loudermilk Chief Executive Officer
Emmett Pepe Chief Financial Officer
Tate Sullivan Maxim Group
Benji Gallander Contra the Heard Investment Letter
Call transcript
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Greetings. Welcome to the GSE Systems, Inc.

Third Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions].

conference recorded. this reminder, a is being As

It Kalle Thank Ahl my pleasure you, your host to introduce of Ahl. is now Mr. The Equity Group.

You may begin.

Kalle Ahl

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

Act statements of Before we like within XXXX. be concerning the XXXX would of Securities begin, the may amended the meaning of call Section forward-looking XXA as made of results. Act reflect everyone this the statements to course considered current during events remind future I Securities that XXE statements of and These Section of expectations and

future Words different not and may, are not and used anticipate, performance expect, mean their and those of that These such that risks to forward-looking forward important materially are actual similar identify could not as is but statements, and cause subject intend, be will, should, statement from to words looking. absence uncertainties believe, expressions to are does statements could, are other or projected. achievements factors performance guarantees a

full Statements of including on intend are Forward-Looking documents uncertainties result to any the Factors under risks, does information, Risk future not new of U.S. filed reports statements whether encouraged GSE otherwise. discussion to section. in revise or these a and GSE's you with forth periodic update and and forward-looking set factors, Exchange read as those events, the Securities or Commission, file a For

meaningful that operational regarding performance adjusted generally these believes to information addition not may EBITDA, management company's net are or measures call, this the measures, performance. other On principles, GAAP in figures, GAAP. accepted which under adjusted adjusted financial provide to income refer supplemental EBITDA, non-GAAP and accounting of Management EPS,

planning, believes Since useful, and finds historical GSE's results to to management's these compensation performance of measures comparisons employee well competitors. operating GSE as and internal facilitates such that non-GAAP benefit to GAAP and both by budgeting, as results, the evaluate evaluating investors businesses the these certain its management allocation. resource non-GAAP as information operating uses This decisions, make GSE's operating of may Management measures for results.

or measure in A Investors G in a comparable to should performance considered, reconciliation and other accordance with non-GAAP not recognize GAAP the GAAP. in similarly not most addition be prepared to of directly companies. might any titled their can for of measures with accordance in to figures These or should superior earnings as non-GAAP that be measures measures substitute to, release. be Regulation company’s SEC found measures comparable these

call please Chief the Mr. GSE Executive Systems. Loudermilk, of turn to to over like Kyle I’d Officer Kyle, Now go ahead.

Kyle Loudermilk

Kalle. you, to call. like third Systems' And conference Thank I’d results quarter welcome everyone XXXX financial to GSE

Hopefully, Emmett we XXXX me today, Joining can this had to results. issued the Chief call our review third our section. on you've Pepe, today’s a Financial financial be our covering if, chance found quarter at a under release. news news Earlier copy But release a press Web site is Officer. not on

business. experienced to & Consulting of Choice Training Engineering's of Industry in the XXXX. impacted industry million, EBITDA million termination of Contract continue Nuclear year disclosed These feel, slightly revenue the $XX.X prior $XX reported by the do with million not in customer Engineer to previously We Adjusted in from full compared we was potential we reflect an million quarter. largest results, $X.X down be DP activity GSE's and QX side as the our $X.X of low

both down As approaching XXXX, points we turning are fronts. we wind believe I in

third negatively planned estimate DP that and we XXXX. quarter million adjusted $X.X the the year-to-date EBITDA Engineering first issue, impacted $X.X of to the tune Regarding GSE's million in of

profitable million. and GSE's to to $X in at streamlined We've a taken the $X XXXX. overall to annual neutral-to-positive of costs approximately business this the fourth for contribution business run expected positioning be million is rate, out of term, which are near to lower quarter be DP's commencing EBITDA its revenue We structure

year, Despite service a now portfolio this with offer capability. acquisition strengthen positioned DP to with the engineering setbacks services. intentionally essential design unique earlier does to enhance of value toolkit the industry GSE operations significant GSE added is solutions'

synergies Our is now selling and up on solid cross focus realizing we move forward. selling as

We and to winning products drive and focus contracts new market. will continue profitability on performance, and brining to

solutions NITC, in line. can Regarding training around ebb in remain industry the trough for force and trend that white services a on our the collar widening aging favorable and talented training work long-term. to skills bidding to positioned executives next a critical I NITC's and near team in the gap nine. key business are We capitalize nuclear current superior professionals in industry second steps flow development staffing know and demand And and activity. are to both up-slipping believe and challenges added We've

a announced major On for nuclear U.S. multiyear utility. support we and that note, training the contract end, after the for quarter operations, technical of fleet maintenance

upside the specific meaningful from positive don’t XXXX optionality see business our of types table. potential or come provide we opportunities levels we to While these in guidance, in NITC current as

in solutions our winning year-to-date full-scope In meat-and-potatoes projects results. of any are we the of contracts. the of we flow side XXXX, simulator business, performance not new were steady On and and that’s bidding aware on reflected

and proposition opportunities U.S. the reference value of the While industry simulator near dual remains any in the major adding full-scope is of know simulator this aware possibility. we of term, don’t

which from the True performance performance to generating efforts DVR our This more and This to -- said, That plant's or our is validation for also are our reconciliation, results. the optimal new continue case plants. is essential and power North successes, data cross existing delivering opportunities. the projects lead are the thermal great studies, selling with

are with are simulator actively demonstrate, our baseline business backlog burned we building full-scope we As and backlog maintaining our delivery. latest results off the that our

$XX This intend is Our which base, a QX. of with at million end to the good stands which backlog at currently steady is QX, we build.

essential entry. to needs it industry, power power I to high service power the particularly plant. carbon we of with and is years be chip blue a compared considering load to of decades energy market capital important modest many These with been new to we to produce to and that the with XXXX, undeniable highly challenges in here the We the think come, first for base nuclear during than remember they stay has nuclear opportunity investment extremely continued free four merits for a GSE While fortunate are experienced leader of services complex more the barriers are customers. part to building is companies that for power the provide serving

when four GSE valuable that more joined a We today we years than company. I'm the far ago firmly business what believe started has with

you traded price and company thinly a Firstly, the the know, has as stock microcap is volatile.

do spot the believe we not reflects such, current stock for the As true that value. market

share we does not or and current have inherent GSE's the that believe and also customers reflect unique difficult to put replace solutions we technologies worth innovative price the employees, that assets, Secondly, specialized go-to-service the highly single entry continue highly confident under demanding future we value to for in barrier high GSE's a together create. platform to power. I and and provider a will am market, nuclear

of debt. emphasis DP on our no were our the containing we've cash purchases Absolute made immediate statement True as maximizing streamlining years, operations, Today, S-X organically, strategy. pause September paying growing through there plans flow over costs, raise is in we last acquisition down to the shelf it. two withdrew capital to and Engineering the Following decision registration North Therefore, our and Consulting,

on performance, drive bringing and We market. profitability will products and continue contracts to to focusing winning new

is the that what presenting seeing now clients. perspective emerging After clients, our expect already We up-selling on our We're in to core broad has to exactly we're theme need. will full chip GSE this over signs management an growth center need cross-selling to want. customers strategic capabilities client and that the and of a blue request

exciting a can of master contract our four business. for to inflection A simplify make sure to work juncture. We're diligently XXXX The be working and years how execution first point of task capabilities. for any all client agreement us will is got hard our an past for services and this

While to open we and focused opportunities. growth, digest be M&A organic transformative cleanup and on mode in presently we clear, are remain to a

platform changed view not has long-term highly yet. GSE Our remains that acquisition valuable

we public therefore acknowledge sale day. also for company a We are that and every

$XX.X year-over-year in year the the to XXXX delivering. for segment due to million QX million quarter, to Solutions million working Returning are we The primarily $X.X Slovakia orders prior that full-scope simulator totaled is in totaling compared third decline on quarter. order Performance $XX.X currently

a Also, great in operating had DVR business earlier the continuation government major recently. we've U.S. to we extension said we for $X.X issues release impressive into support new QX, for engineering some two QX, our an million U.S. million detailing dedicated company. U.S. nuclear order wins $X.X a That XXXX services solution for an received press from Navy. the of laboratories In for approximately support

the quarter that provide $XX.X to compared of In segment, prior NITC our a $X.X quarter. third of the million we continuation existing QX for year companies. segment the services support Much totaled orders nuclear were U.S. in NITC million to orders

demand QX we the targeted efforts keeping would that We in eye industry a investments are adding for the enhance to results keen into our solutions, to realizing and three as investments, to our During business return NITC on head better optimistic with combined and nuclear to we targeted staffing XXXX. lead QX, rebound development investments success. QX, track seasoned these in expect respective records professionals made start in to these with into on We're business.

improvement approximately totaled backlog, consisting backlog. $XX.X million the of attributable at DP which of end backlog $XX.X to $X.X million Our Engineering, million performance QX was million, of NITC $XX.X of

million XXXX and of the quarter. at backlog the June prior Our was $XX.X year total end XX, million at $XX.X

support organic the business, our and strategy, believe that in drive to focusing development previously, and growth. segments mentioned NITC performance and we current As core building backlog is both we our to business level sufficient are our executing on

signs nuclear see on medium industry nuclear for centered Looking the term of such ahead, significant in digitalization cycle as power we plant systems. emerging trends, potentially CapEx

next move years. providing the from for expect over We will digital to us opportunities industry's the significant analog five that accelerate,

of consolidation, that to achieve we're more value demand. meet in a the a depth vendor industry them fewer greater seeing provide for well clients drive towards added breadth and to demanding We're emerging manner. Additionally, in already that greater efficient expertise vendors positioned

system develop and our and the Reactors. Support operations Energy, competencies Department core supporting Idaho Solutions awarded unique paper to grant for in Decision is operator INL. recently capabilities based to software and efficiency commercializing the collaboration Advanced with to processes. functionality digitalization U.S. example bring and as procedures and with developing theme, Laboratory testament towards Procedures Dynamic revolutionize our grant GSE development We existing National aimed simulation, this of to compared the the An The to a nuclear the and system

and longer extension reliability, operational to industry of power closing, let assets. solid, generate In reiterate improvement, term power me end life our for continues plant that fundamentals markets performance safety, invest of from nuclear the the remain more to existing and

GSE nuclear, take advantage industry. uniquely in serving ecosystem vendor the the in is positioned leader major trends the As of these to

now the turn Pepe, the call go will ahead. review who please third I'll quarter over Emmett, Emmett to our CFO, results.

Emmett Pepe

Thank million $X.X $X.X primarily of million is our customers in quarter's acquisition QX due you, our Engineering QX quarter. NITC increase more augmentation contributed revenue. $XX Kyle. during 'XX in by the staff Performance NITC Improvement of $XXX,XXX than offset lower in QX this million from to partially needs driven decline revenue business. which in revenue, in XXXX, million revenue compared to by in in The our is legacy DP decrease revenue, was offset of increase revenue revenue in $XX.X reflecting million segment performance primarily segment the $X.X to The XXXX, was by which Improvement decrease our Total Performance

business this improved Kyle are hires segment, are well we and positioned As on new in about development excited deliver we the results XXXX. touched to previously, in

of XXXX. totaled $XXX,XXX Performance QX compared profit million, $X.X $X.X to in the to million. XXXX in declined gross $XX,XXX Improvement profit $X.X QX million. driven revenue to decreased year-over-year decline $X.X approximately million NITC by by Gross gross profit approximately year-over-year million $X.X

DP in million by was Improvement impairment as to an of additional earnings we and million needed. the the QX previous impairment incentive company allowances figure Also, in Performance on performed XXXX, comparable $X.X below mentioned cost in no totaled reduced the driven plans primarily quarter, expenses by updated and on call, segment our due results. SG&A $X.X driven

loss Operating loss Engineering. QX in $XX,XXX of executive related in operating loss $XXX,XXX in DP changes driven of equaled year-over-year team the to an leadership approximately and 'XX compared by QX the in $XXX,XXX rightsizing XXXX. restructuring to the The operating in is increase costs

to previously, reach mentioned evaluating DP and in the spent QX fixed Kyle cost changes implemented loss business after where contract significant breakeven possible. As eliminated We necessary we time approximately 'XX.

terminating in example, and leases For QX options facility remaining our are two for in evaluating Worth. unused Fort the space

and to DP business. closely the continue will monitor optimize We

the earnings our $X.X $XXX,XXX to includes XXXX. QX million and approximately QX DP million in the totaled EBITDA, $X.X from position QX a QX of in adjusted by which cash million Non-GAAP debt decreased XXXX, $X.X debt which XXXX of of made defined $XX.X release, XXXX, with during as payments approximately $X.X We concluded million total to we end quarter. compared compared million, in loss reflecting

we successful, space sub goal Maryland Finally, our flow office and these unused and debt are improve If opportunities sites further of evaluating Worth cash to will support to the evaluate options. find in down. we’re If sublet addition previously. space to could our mentioned Fort additional changes pay suitable we unable tenants, for

I’ll Kyle. the conversation turn now to back

Kyle Loudermilk

floor Emmett. open please right, Thanks All for the questions. very much. Operator,


Instructions]. [Operator you Thank

with question. Tate question Please first your Our Group. Maxim is from proceed Sullivan with

Tate Sullivan

options can you evaluating repeat on I missed comment. sorry you that about your Was that? and Emmett, that facility said just what about credit last

Emmett Pepe

And office options to our to leasing, space. look at this in we’re that sub we’re if leasing. do No, what unsuccessful sub other evaluating we’ll with space,

Tate Sullivan

-- you our on And then I said the mentioned divestment streamlining Kyle, going forward when operations, earlier mean, table?

Kyle Loudermilk

Currently, industry. considering Tate, are we’re by action power in nuclear we’ve neat not services put together really taken a demand to portfolio pretty that unique of that. the deliberate

our I So strategy. of kind that frames think

Tate Sullivan

the the is offerings other cadence weakness be different and staffing, your general. why to that? in moves And a mean, then in I it seems And -- than in staffing

Kyle Loudermilk

mostly end had qualitatively, guess, through through successfully termination exception a not this perfectly to from With cycles, Tate, point a our flight a came peaks had with one lines troughs. natural project have in year, the they that, client, last cyclicality, cycles. to type to its contract, specific annual from another training significant sync and any one the of of year-over-year, business is qualitative. but with I not XXXX. that's an They said, was NITC, And at be which we with budgeting at very seem in get each of that of which independent

year-over-year well business in from that of comparison, softness is we working fact So get of. the that, there that are, out as line of as affected a bit we're by that to

Tate Sullivan

for And release, you what win, the acquisitions, the is you about the Can operating one client? press and that last is I maintenance -- to it noticed me me one and that remind contract referred talked too, for or large just of and related in to what three work. your

Kyle Loudermilk

That's NITC.

of specifically blend NITC, a that's a So Hyperspring with services there.

very encouraging So that see. was very, to

Tate Sullivan

maintenance The operating that, component of it's not… and

Kyle Loudermilk

that that NITC specifically an The isn't fact win.


you next Heard line with Instructions] Contra is Benji [Operator Our from Benji, question with question. muted. check Gallander your the proceed your have if Investment Letter. please do Please

Benji Gallander

you great, and you Because approaching the selling I've and GSE. what Yes, are the sense you're Taking some I I've company? And that just was companies the worse. pausing I it, and about the in longtime the companies, do guess, haven't strategic let's results been work. been actually a over face three alternatives your and at selling think gotten which given they've looking about wondering it, shareholder heard the depth. rumors makes alternatives I appreciate

Kyle Loudermilk

we've can we're on share, is we focusing shared business. what the operating I think which Well,

now We is which have kept for backlog our two a steady good quarters, sign.

signals some customer pause acquisition really We about they we're that. have focus market mentioned we are strategy. To us, our what reiterate to neat need our a and put from and it, you seeing on on going from

bowl to going selling some focus are up seeing whole not Customers or assembly and broader in cover piece proposals We and traction just of for and one eggs, we're already selling specifically that on capabilities, have and of we're asking part. contract neat really that. assets a cross the neat

We day, a Other this Benjamin. and for the what on to we're call, have news than matter say we public more focused good nothing really on every We're really in that's sale that, stated company. than we've that. we're So said.

Benji Gallander

Globe I fortunately. been you drag a also XX-year an guys The the has Investment Mail. investment be article Canada's I big wrote about GSE us letter, for think, Newspaper, returns annualized I'll Contra XX.X%. National for and writing Heard Letter,

company. just strategic think you offers, want I a say think to the maybe alternatives. at for I guys we should rather than But it's good waiting look perhaps

I lot the be of you've a value shareholders company good selling work. think point. the done real would at I in for this But think

Kyle Loudermilk

the Appreciate perspective, Benjamin.


to question-and-answer closing I like And the would session. conference that to remarks. for concludes back Kyle turn our over

Kyle Loudermilk

thank today. to like joining for everybody I'd us

to to really worked are point this we're -- We confident are have headed. seeing we've we're really good to get where future, and and hard by remain what a excited in

interest your for appreciate in and So us that joining again, said, everyone GSE. time we thanks with and


today's concludes This conference.

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