FOR IMMEDIATE RELEASE
GSE SYSTEMS ANNOUNCES SECOND QUARTER 2019 FINANCIAL RESULTS
COLUMBIA, MD - August 14, 2019 - GSE Systems, Inc. (GSE or the Company) (Nasdaq: GVP), a leading provider of professional and technical engineering, staffing services and simulation software to clients in the power and process industries, today announced financial results for the second quarter
(Q2) ended June 30, 2019.
Q2 2019 vs. Q2 2018 OVERVIEW
|
Revenue of $23.5 million, compared to $24.7 million.
|
|
Gross profit of $5.9 million, compared to $6.3 million.
|
|
Net loss of $(0.1) million, or $(0.01) per diluted share, compared to net income of $1.0 million, or $0.05 per diluted share.
|
|
Adjusted net income1 of $1.0 million, or $0.05 per diluted share, compared to $2.5 million, or $0.13 per diluted share.
|
|
Adjusted EBITDA1 of $1.9 million, compared to $2.4 million.
|
|
Reduced debt by approximately $1.2 million in Q2 2019.
|
At June 30, 2019
|
Cash and cash equivalents of $9.7 million.
|
|
Total debt of $21 million.
|
|
Working capital of $10.5 million and current ratio of 1.5x.
|
|
YTD new orders of $23.9 million.
|
|
Backlog of $54.9 million.
|
Kyle J. Loudermilk, GSE’s President and Chief Executive Officer, said, “Adjusted EBITDA was $1.9 million, up significantly from $0.2 million in the first quarter of 2019 as we
continued to work through the previously disclosed work suspension with a customer at DP Engineering. The work suspension reduced adjusted EBITDA for our Performance Improvement segment by approximately $0.4 million in the second quarter of 2019 and
$0.7 million year to date. This contract was terminated on August 6, 2019 and we expect to reduce expenses in line with costs by the end of Q3. Moreover, we are observing encouraging signs of a potentially significant emerging capex cycle based on
industry trends, such as nuclear plant digitalization for safety related equipment, which plays to the combined strengths of our platform, positioning us well for potential future bidding activity. Moving to our NITC segment, we were impacted by
weaker customer demand for our staffing services during the quarter. While disappointed with NITC’s results, we are optimistic that recent hires of several high-quality business development professionals will deliver a positive impact on orders,
backlog, and sales. Finally, the international restructuring undertaken in the prior year continued to favorably impact our year over year cost comparisons this quarter."
Mr. Loudermilk concluded, "We are actively pursuing additional business opportunities in the nuclear industry as we look to diversify the client base for our very essential
services. As an example, subsequent to Q2, we were awarded an approximately $1.5 million contract with a large nuclear operating company in which we will deliver a Data Validation and Reconciliation, or DVR, solution for 11 reactors at six of the
utility's nuclear sites. This is our second contract this year with a major nuclear provider for this type of solution, bringing our total DVR-related new orders in 2019 to over $4 million. Although quarter to quarter variability can be expected
given the project nature of our business, we have taken decisive actions to increase new order flow and backlog in the coming quarters. We are committed and well positioned to drive improved performance through our strategic set of assets, talented
employees and specialized technologies that deliver value-added solutions to the nuclear power industry, which is increasingly recognized throughout the world as a critical source of carbon-free baseload energy.”
1 Refer to the non-GAAP reconciliation tables at the end of this press release for a definition of “adjusted EBITDA” and “adjusted net income”.
1
Q2 2019 RESULTS
Q2 2019 revenue decreased $1.2 million to $23.5 million, from $24.7 million in Q2 2019.
|
Three months ended
|
Six months ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
Revenue
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
|
Performance
|
$
|
13,010
|
$
|
10,864
|
$
|
25,200
|
$
|
20,765
|
||||||||
|
NITC
|
10,448
|
13,834
|
20,452
|
26,828
|
||||||||||||
|
Total Revenue
|
$
|
23,458
|
$
|
24,698
|
$
|
45,652
|
$
|
47,593
|
||||||||
Performance Improvement Solutions (Performance) revenue totaled $13.0 million and $10.9 million for Q2 2019 and Q2 2018, respectively. The Company recorded total Performance
orders of $3.7 million and $8.6 million for Q2 2019 and Q2 2018, respectively. The increase in revenue was primarily driven by the acquisition of DP Engineering in Q1 2019, which contributed $2.7 million of revenue in Q2 2019. It was partially offset
by the decrease of $0.6 million revenue from foreign subsidiaries as a result of the winding down of the international subsidiaries.
Nuclear Industry Training and Consulting (NITC) revenue decreased to $10.4 million for Q2
2019 from $13.8 million for Q2 2018. NITC orders totaled $5.8 million and $7.4 million for Q2 2019 and Q2 2018, respectively. The decrease in revenue was largely due to lower staffing needs during the quarter. Q2 2019 gross profit decreased to $5.9 million, or 25% of revenue, from $6.3 million, or 26% of revenue, in Q2 2018.
|
(in thousands)
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||||||||||||||
|
Gross profit
|
2019
|
%
|
2018
|
%
|
2019
|
%
|
2018
|
%
|
||||||||||||||||||||||||
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||||||||||||||||||
|
Performance
|
$
|
4,540
|
34.9
|
%
|
$
|
4,429
|
40.8
|
%
|
$
|
8,239
|
32.7
|
%
|
$
|
7,680
|
37.0
|
%
|
||||||||||||||||
|
NITC
|
1,327
|
12.7
|
%
|
1,911
|
13.8
|
%
|
2,364
|
11.6
|
%
|
3,558
|
13.3
|
%
|
||||||||||||||||||||
|
Gross Profit
|
$
|
5,867
|
25.0
|
%
|
$
|
6,340
|
25.7
|
%
|
$
|
10,603
|
23.2
|
%
|
$
|
11,238
|
23.6
|
%
|
||||||||||||||||
Performance gross profit for Q2 2019 was $4.5 million, or 34.9% gross margin, compared to $4.4 million, or 40.8% gross margin, in Q2 2018. The gross margin percentage for
Performance was lower in Q2 2019, primarily due to the recent acquisitions of True North and DP Engineering which have lower margin projects.
NITC gross profit for Q2 2019 was $1.3 million, or 12.7% gross margin, compared to approximately $1.9 million, or 13.8% gross margin, in Q2 2018. The lower gross profit percentage
in Q2 2019 was primarily due to lower margin work from a major customer in 2019.
Selling, general and administrative (SG&A) expenses in Q2 2019 totaled $4.3 million, or 18.5% of revenue, compared to $4.8 million, or 19.4% of revenue, in Q2 2018. The minor
fluctuations in SG&A expenses represented the normal changes in the regular business operation.
Amortization of definite-lived intangible assets increased to $0.5 million in Q2 2019, compared to $0.3 million in Q2 2018. The increase in amortization of definite-lived
intangible assets in 2019 was primarily due to acquisitions of DP Engineering and True North. In Q2 2019, DP Engineering and True North's amortization expenses totaled $0.1 million and $0.3 million, respectively.
Operating income was approximately $0.7 million and $0.7 million in Q2 2019 and Q2 2018, respectively.
Net loss for Q2 2019 totaled approximately $(0.1) million, or $(0.01) per basic and diluted share, compared to net income of $1.0 million, or $0.05 per basic and diluted share, in
Q2 2018. The change was primarily driven by $0.3 million of increase on interest expense and $0.9 million increase on provision for income taxes.
Adjusted net income1, which excludes from net income the impact of non-cash loss on impairment, impact of the change in fair value of contingent consideration,
restructuring charges, stock-based compensation expense, impact of the change in fair value of derivative instruments, acquisition related expenses, amortization of intangible assets related to acquisitions, and bad debt expense due to customer
bankruptcy, was approximately $1.0 million, or $0.05 per diluted share, compared to approximately $2.5 million, or $0.13 per diluted share, in Q2 2018.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") for Q2 2019 was $1.3 million compared to $1.2 million in Q2 2018.
Adjusted EBITDA1, which excludes from EBITDA non-cash loss on impairment, the
impact of the change in fair value of contingent consideration, restructuring charges, stock-based compensation expense, impact of the change in fair value of derivative instruments, acquisition related expenses, and bad debt due to customer
bankruptcy, totaled approximately $1.9 million and $2.4 million for Q2 2019 and Q2 2018, respectively.
BACKLOG AND CASH POSITION
Backlog at June 30, 2019 was $54.9 million, compared to $68.9 million at March 31, 2019. Backlog at June 30,
2019, included $38.6 million of Performance backlog, $4.9 million of which was attributable to DP Engineering, and $16.3 million of NITC backlog.
GSE’s cash position at June 30, 2019, was $9.7 million, as compared to $11.3 million, at March 31, 2019. The change in cash position was primarily driven by the timing difference of cash collection and payments in different periods and $1.2 million payment on the principal of long-term debt.
2
CONFERENCE CALL
Management will host a conference call today at 4:30 pm Eastern Time to discuss Q2 2019 results as well as other matters.
Interested parties may participate in the call by dialing:
|
(877) 407-9753 (Domestic)
|
|
(201) 493-6739 (International)
|
The conference call will also be accessible via the following link:
https://78449.themediaframe.com/dataconf/productusers/gvp/mediaframe/31717/indexl.html
For those who cannot listen to the live broadcast, an online webcast replay will be available at www.gses.com or through November 14, 2019 at the following link:
https://78449.themediaframe.com/dataconf/productusers/gvp/mediaframe/31717/indexl.html
ABOUT GSE SYSTEMS, INC.
GSE Systems, Inc. is a leading provider of engineering, expert staffing, and simulation software to clients in the power and process industries. GSE’s products and services are
tailored to help customers achieve performance excellence in design, training, compliance, and operations. The Company has over four decades of experience, more than 1,100 installations, and hundreds of customers in over 50 countries spanning the
globe. GSE Systems is headquartered in Maryland, with offices in Alabama, Florida, Colorado, Texas and Beijing, China. Information about GSE Systems is available at www.gses.com.
FORWARD LOOKING STATEMENTS
We make statements in this press release that are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934. These statements reflect our current expectations concerning future events and results. We use words such as “expect,” “intend,” “believe,” “may,” “will,” “should,” “could,”
“anticipates,” and similar expressions to identify forward-looking statements, but their absence does not mean a statement is not forward-looking. These statements are not guarantees of our future performance and are subject to risks, uncertainties,
and other important factors that could cause our actual performance or achievements to be materially different from those we project. For a full discussion of these risks, uncertainties, and factors, we encourage you to read our documents on file
with the Securities and Exchange Commission, including those set forth in our periodic reports under the forward-looking statements and risk factors sections. We do not intend to update or revise any forward-looking statements, whether as a result of
new information, future events, or otherwise.
|
Company Contact
|
The Equity Group Inc.
|
|
|
Chris Sorrells
|
Kalle Ahl, CFA
|
|
|
Chief Operating Officer
|
(212) 836-9614
|
|
|
GSE Systems, Inc.
|
kahl@equityny.com
|
|
|
(410) 970-7802
|
3
GSE SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
|
Three months ended
|
Six months ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2019
|
2018
|
2019
|
2018
|
|||||||||||||
|
Revenue
|
$
|
23,458
|
$
|
24,698
|
$
|
45,652
|
$
|
47,593
|
||||||||
|
Cost of revenue
|
17,591
|
18,358
|
35,049
|
36,355
|
||||||||||||
|
Gross profit
|
5,867
|
6,340
|
10,603
|
11,238
|
||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Selling, general and administrative
|
4,343
|
4,793
|
8,766
|
9,320
|
||||||||||||
|
Research and development
|
156
|
189
|
396
|
518
|
||||||||||||
|
Restructuring charges
|
2
|
190
|
2
|
1,107
|
||||||||||||
|
Loss on impairment
|
-
|
-
|
5,464
|
-
|
||||||||||||
|
Depreciation
|
102
|
176
|
193
|
279
|
||||||||||||
|
Amortization of definite-lived intangible assets
|
547
|
312
|
1,056
|
462
|
||||||||||||
|
Total operating expenses
|
5,150
|
5,660
|
15,877
|
11,686
|
||||||||||||
|
Operating income (loss)
|
717
|
680
|
(5,274
|
)
|
(448
|
)
|
||||||||||
|
Interest (expense), net
|
(316
|
)
|
(61
|
)
|
(524
|
)
|
(39
|
)
|
||||||||
|
Loss on derivative instruments, net
|
(101
|
)
|
(91
|
)
|
(8
|
)
|
(247
|
)
|
||||||||
|
Other (expense) income, net
|
(19
|
)
|
4
|
3
|
29
|
|||||||||||
|
Income (loss) before income taxes
|
281
|
532
|
(5,803
|
)
|
(705
|
)
|
||||||||||
|
Provision (benefit) for income taxes
|
406
|
(449
|
)
|
(1,442
|
)
|
(190
|
)
|
|||||||||
|
Net (loss) income
|
$
|
(125
|
)
|
$
|
981
|
$
|
(4,361
|
)
|
$
|
(515
|
)
|
|||||
|
Basic (loss) income per common share
|
$
|
(0.01
|
)
|
$
|
0.05
|
$
|
(0.22
|
)
|
$
|
(0.03
|
)
|
|||||
|
Diluted (loss) income per common share
|
$
|
(0.01
|
)
|
$
|
0.05
|
$
|
(0.22
|
)
|
$
|
(0.03
|
)
|
|||||
|
Weighted average shares outstanding - Basic
|
20,006,492
|
19,651,441
|
19,979,018
|
19,580,046
|
||||||||||||
|
Weighted average shares outstanding - Diluted
|
20,006,492
|
20,029,123
|
19,979,018
|
19,580,046
|
||||||||||||
4
GSE SYSTEMS, INC AND SUBSIDIARIES
Selected Balance Sheet Data (in thousands)
|
June 30, 2019
|
December 31, 2018
|
|||||||
|
(unaudited)
|
(audited)
|
|||||||
|
Cash and cash equivalents
|
$
|
9,672
|
$
|
12,123
|
||||
|
Current assets
|
30,947
|
35,000
|
||||||
|
Total assets
|
68,996
|
61,440
|
||||||
|
Current liabilities
|
$
|
20,400
|
$
|
22,330
|
||||
|
Long-term liabilities
|
20,975
|
7,981
|
||||||
|
Stockholders' equity
|
27,621
|
31,129
|
||||||
EBITDA and Adjusted EBITDA Reconciliation (in thousands)
References to “EBITDA” mean net (loss) income, before taking into account interest expense (income), provision for income taxes, depreciation, and amortization. References to Adjusted EBITDA exclude non-cash loss resulting from impairment charges to lower carrying amount of goodwill and intangible assets, impact
of the change in fair value of contingent consideration, restructuring charges, stock-based compensation expense, impact of the change in fair value of derivative instruments, and acquisition-related expense. EBITDA and Adjusted EBITDA are
not measures of financial performance under generally accepted accounting principles (GAAP). Management believes EBITDA and Adjusted EBITDA, in addition to operating profit, net income and other GAAP measures, are useful to investors to evaluate the
Company’s results because it excludes certain items that are not directly related to the Company’s core operating performance that may, or could, have a disproportionate positive or negative impact on our results for any particular period. Investors
should recognize that EBITDA and Adjusted EBITDA might not be comparable to similarly-titled measures of other companies. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance
prepared in accordance with GAAP. A reconciliation of non-GAAP EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure in accordance with SEC Regulation G follows:
|
Three months ended
|
Six months ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2019
|
2018
|
2019
|
2018
|
|||||||||||||
|
Net (loss) income
|
$
|
(125
|
)
|
$
|
981
|
$
|
(4,361
|
)
|
$
|
(515
|
)
|
|||||
|
Interest expense (income), net
|
316
|
61
|
524
|
39
|
||||||||||||
|
Provision (benefit) for income taxes
|
406
|
(449
|
)
|
(1,442
|
)
|
(190
|
)
|
|||||||||
|
Depreciation and amortization
|
748
|
573
|
1,477
|
944
|
||||||||||||
|
EBITDA
|
1,345
|
1,166
|
(3,802
|
)
|
278
|
|||||||||||
|
Loss on impairment
|
-
|
-
|
5,464
|
-
|
||||||||||||
|
Change in fair value of contingent consideration
|
-
|
-
|
(1,200
|
)
|
-
|
|||||||||||
|
Restructuring charges
|
2
|
190
|
2
|
1,107
|
||||||||||||
|
Stock-based compensation expense
|
439
|
401
|
1,036
|
1,028
|
||||||||||||
|
Impact of the change in fair value of derivative instruments
|
101
|
91
|
8
|
247
|
||||||||||||
|
Acquisition-related expense
|
-
|
491
|
628
|
491
|
||||||||||||
|
Bad debt expense due to customer bankruptcy
|
-
|
65
|
-
|
65
|
||||||||||||
|
Adjusted EBITDA
|
$
|
1,887
|
$
|
2,404
|
$
|
2,136
|
$
|
3,216
|
||||||||
5
Adjusted Net Income and Adjusted EPS Reconciliation (in thousands, except per share amounts)
References to Adjusted net income exclude non-cash loss on impairment, impact of the change in fair value of contingent consideration, restructuring
charges, stock-based compensation expense, impact of the change in fair value of derivative instruments, acquisition-related expense, and amortization of intangible assets related to acquisitions. Adjusted Net Income and adjusted earnings
per share (adjusted EPS) are not measures of financial performance under generally accepted accounting principles (GAAP). Management believes adjusted net income and adjusted EPS, in addition to other GAAP measures, are useful to investors to
evaluate the Company’s results because they exclude certain items that are not directly related to the Company’s core operating performance that may, or could, have a disproportionate positive or negative impact on our results for any particular
period. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP. A reconciliation of non-GAAP adjusted net income and adjusted EPS to GAAP net
income, the most directly comparable GAAP financial measure, is as follows:
|
Three months ended
|
Six months ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2019
|
2018
|
2019
|
2018
|
|||||||||||||
|
Net (loss) income
|
$
|
(125
|
)
|
$
|
981
|
$
|
(4,361
|
)
|
$
|
(515
|
)
|
|||||
|
Loss on impairment
|
-
|
-
|
5,464
|
-
|
||||||||||||
|
Change in fair value of contingent consideration
|
-
|
-
|
(1,200
|
)
|
-
|
|||||||||||
|
Restructuring charges
|
2
|
190
|
2
|
1,107
|
||||||||||||
|
Stock-based compensation expense
|
439
|
401
|
1,036
|
1,028
|
||||||||||||
|
Impact of the change in fair value of derivative instruments
|
101
|
91
|
8
|
247
|
||||||||||||
|
Acquisition-related expense
|
-
|
491
|
628
|
491
|
||||||||||||
|
Amortization of intangible assets related to acquisitions
|
547
|
312
|
1,056
|
462
|
||||||||||||
|
Bad debt expense due to customer bankruptcy
|
-
|
65
|
-
|
65
|
||||||||||||
|
Adjusted net income
|
$
|
964
|
$
|
2,531
|
$
|
2,633
|
$
|
2,885
|
||||||||
|
Diluted (loss) income per common share
|
$
|
(0.01
|
)
|
$
|
0.05
|
$
|
(0.22
|
)
|
$
|
(0.03
|
)
|
|||||
|
Adjusted earnings per common share - Diluted
|
$
|
0.05
|
$
|
0.13
|
$
|
0.13
|
$
|
0.14
|
||||||||
|
Weighted average shares outstanding - Diluted(1)
|
20,269,733
|
20,029,123
|
20,154,866
|
19,920,034
|
||||||||||||
(1) During the six months ended June 30, 2019 and 2018, the Company reported both a GAAP net loss and positive adjusted net income. Accordingly, there were 175,848 and
714,821 dilutive shares from options and RSUs included in the adjusted earnings per common share calculation that were considered anti-dilutive in determining the GAAP diluted loss per common share.
(1) During the three months ended June 30, 2019 and 2018, the Company reported a GAAP net loss and positive adjusted net income. Accordingly, there were 263,241
dilutive shares from options and RSUs included in the adjusted earnings per common share calculation, that were considered anti-dilutive in determining the GAAP diluted loss per common share. During the three months ended June 30, 2018, the Company
reported both a GAAP net income and positive adjusted net income. Accordingly, there were 377,682 dilutive shares from options and RSUs included in the adjusted earnings per common share calculation.
6