(Mark One)
|
|||
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended
|
||
or
|
|||
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____ to ____
|
Commission File Number
|
|
(Exact name of registrant as specified in its charter)
|
|
|
|
(State of incorporation)
|
(I.R.S. Employer Identification Number)
|
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s telephone number, including area code: (
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
Smaller reporting company
|
Emerging growth company
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
||
|
|
The
|
Page
|
||
PART I.
|
3
|
|
Item 1.
|
3 |
|
3
|
||
4
|
||
5
|
||
6
|
||
8 | ||
9 | ||
9 | ||
10 | ||
11 | ||
11 | ||
11 | ||
11 |
||
12 | ||
13 | ||
18 | ||
18 | ||
19 |
||
19 |
||
20 |
||
Item 2.
|
22 | |
General Business Overview |
22 |
|
Backlog |
26 |
|
Results of Operations |
26 | |
Critical Accounting Policies and Estimates |
30 | |
Liquidity and Capital Resources |
30 | |
Non-GAAP Measures |
30 |
|
Item 3.
|
31 | |
Item 4.
|
32 | |
PART II.
|
32 | |
Item 1.
|
32 | |
Item 1A.
|
32 | |
Item 2.
|
32
|
|
Item 3
|
32 | |
Item 4
|
33
|
|
Item 5.
|
33
|
|
Item 6.
|
34
|
|
Signatures |
36 |
June 30, 2024
|
December 31, 2023
|
|||||||
(unaudited)
|
||||||||
(in thousands, except
per share and
per share data)
|
||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
|
$
|
|
||||
Restricted cash, current
|
||||||||
Contract receivables, net of allowance for credit loss
|
|
|
||||||
Prepaid expenses and other current assets
|
|
|
||||||
Total current assets
|
|
|
||||||
Equipment, software and leasehold improvements, net
|
|
|
||||||
Software development costs, net
|
|
|
||||||
Goodwill
|
|
|
||||||
Intangible assets, net
|
|
|
||||||
Restricted cash - long term | ||||||||
Operating lease right-of-use assets, net
|
|
|
||||||
Other assets
|
|
|
||||||
Total assets
|
$
|
|
$
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Current portion of long-term note
|
$
|
|
$
|
|
||||
Accounts payable
|
|
|
||||||
Accrued expenses
|
|
|
||||||
Accrued legal settlements
|
||||||||
Accrued compensation
|
|
|
||||||
Billings in excess of revenue earned
|
|
|
||||||
Accrued warranty
|
|
|
||||||
Income taxes payable
|
|
|
||||||
Derivative liabilities
|
||||||||
Other current liabilities
|
|
|
||||||
Total current liabilities
|
|
|
||||||
Long-term note, less current portion
|
|
|
||||||
Operating lease liabilities, noncurrent
|
|
|
||||||
Other noncurrent liabilities
|
|
|
||||||
Total liabilities
|
|
|
||||||
Commitments and contingencies (Note 12)
|
||||||||
Stockholders’ equity:
|
||||||||
Preferred stock $
|
|
|
||||||
Common stock $
|
|
|
||||||
Additional paid-in capital
|
|
|
||||||
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||
Accumulated other comprehensive income
|
|
|
||||||
Treasury stock at cost,
|
(
|
)
|
(
|
)
|
||||
Total stockholders’ equity
|
|
|
||||||
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
For the Three
Months Ended
|
For the Six
Months Ended
|
|||||||||||||||
June 30,
2024
|
June 30,
2023
|
June 30,
2024
|
June 30,
2023
|
|||||||||||||
(in thousands, except per share data) |
||||||||||||||||
Revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Cost of revenue
|
|
|
|
|
||||||||||||
Gross profit
|
|
|
|
|
||||||||||||
Operating expenses:
|
||||||||||||||||
Selling, general and administrative
|
|
|
|
|
||||||||||||
Research and development
|
|
|
|
|
||||||||||||
Restructuring charges
|
||||||||||||||||
Depreciation
|
|
|
|
|
||||||||||||
Amortization of intangible assets
|
|
|
|
|
||||||||||||
Total operating expenses
|
|
|
|
|
||||||||||||
Operating income (loss)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
Interest expense, net
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Change in fair value of derivative instruments, net
|
(
|
)
|
|
(
|
)
|
|
||||||||||
Other (loss) income, net
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
Loss before income taxes
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Expense (benefit) from income taxes |
|
|
|
(
|
)
|
|||||||||||
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Net loss per common share - basic and diluted
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Weighted average shares outstanding used to compute net
loss per share - basic and diluted
|
|
|
|
|
For the Three
Months Ended |
For the Six
Months Ended
|
|||||||||||||||
June 30,
2024
|
June 30,
2023
|
June 30,
2024
|
June 30,
2023
|
|||||||||||||
(in thousands) |
||||||||||||||||
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Cumulative translation adjustment
|
(
|
)
|
|
|
|
|||||||||||
Comprehensive loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Common Stock
|
Treasury Stock
|
|||||||||||||||||||||||||||||||
Six Months Ended
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated Other
Comprehensive Loss
|
Shares
|
Amount
|
Total
|
||||||||||||||||||||||||
Balance, January 1, 2024
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Repayment of convertible note in shares |
- | |||||||||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Balance, June 30, 2024
|
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
|
(
|
)
|
$ |
(
|
)
|
$ |
|
|||||||||||||||
Balance, January 1, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
Adoption of |
Current Expected Credit Losses (CECL) ( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance, January 1, 2023 | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
||||||||||||||||||
Repayment of convertible note in shares |
- | |||||||||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Balance, June 30, 2023
|
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
|
(
|
)
|
$ |
(
|
)
|
$ |
|
Common Stock
|
Treasury Stock
|
|||||||||||||||||||||||||||||||
Three Months
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated Other
Comprehensive Loss
|
Shares
|
Amount
|
Total
|
||||||||||||||||||||||||
Balance, March 31, 2024
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
Stock-based compensation expense
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
(
|
)
|
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
(
|
)
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Repayment of convertible note in shares |
- | |||||||||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Balance, June 30, 2024
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Common Stock |
Treasury Stock |
|||||||||||||||||||||||||||||||
Shares |
Amount |
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated
Other
Comprehensive
Loss
|
Shares |
Amount |
Total |
|||||||||||||||||||||||||
Balance, March 31, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||||
Stock-based compensation expense
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Common stock issued for RSUs vested
|
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Shares withheld to pay taxes
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
|
|
|
|
-
|
|
|
||||||||||||||||||||||||
Repayment of convertible note in shares |
- | |||||||||||||||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
|
-
|
|
(
|
)
|
||||||||||||||||||||||
Balance, June 30, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
(
|
)
|
$
|
(
|
)
|
$
|
|
For the Six Months Ended
|
||||||||
June 30, 2024
|
June 30, 2023
|
|||||||
(in thousands) |
||||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation
|
|
|
||||||
Amortization of intangible assets
|
|
|
||||||
Amortization of capitalized software development costs
|
|
|
||||||
Amortization of deferred financing costs
|
|
|
||||||
Amortization of debt discount
|
||||||||
Loss on debt settled in shares
|
||||||||
Stock-based compensation expense
|
|
|
||||||
Credit loss expense
|
|
|
||||||
Change in fair value of derivative instruments, net
|
|
(
|
)
|
|||||
Deferred income taxes
|
( |
) | ||||||
Foreign currency transaction loss |
||||||||
Changes in assets and liabilities:
|
||||||||
Contract receivables
|
|
(
|
)
|
|||||
Prepaid expenses and other assets
|
|
|
||||||
Accounts payable, accrued compensation and accrued expenses
|
|
|
||||||
Billings in excess of revenue earned
|
(
|
)
|
(
|
)
|
||||
Accrued warranty
|
(
|
)
|
(
|
)
|
||||
Other liabilities
|
(
|
)
|
|
|||||
Net cash provided by (used in) operating activities
|
|
(
|
)
|
|||||
|
||||||||
Cash flows from investing activities:
|
||||||||
Capital expenditures
|
(
|
)
|
(
|
)
|
||||
Capitalized software development costs
|
(
|
)
|
(
|
)
|
||||
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Repayment of insurance premium financing
|
(
|
)
|
(
|
)
|
||||
Proceeds from issuance of long-term debt and warrants |
||||||||
Payments of debt issuance and original discount on issuance of long-term debt and warrants |
( |
) | ||||||
Principal repayment of convertible note
|
( |
) | ( |
) | ||||
Tax paid for shares withheld
|
(
|
)
|
(
|
)
|
||||
Net cash (used in) provided by financing activities
|
(
|
)
|
|
|||||
|
||||||||
Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
||||
Net decrease in cash, cash equivalents and restricted cash
|
(
|
)
|
(
|
)
|
||||
Cash, cash equivalents and restricted cash at beginning of the period
|
|
|
||||||
Cash, cash equivalents and restricted cash at the end of the period
|
$
|
|
$
|
|
||||
|
||||||||
Cash and cash equivalents
|
$ | $ | ||||||
Restricted cash, current
|
||||||||
Restricted cash included in other long-term assets
|
||||||||
Total cash, cash equivalents and restricted cash
|
$ | $ | ||||||
|
||||||||
Supplemental cash flow disclosures:
|
||||||||
Non-cash financing activities
|
||||||||
Repayment of convertible note in shares
|
$ | $ | ||||||
Establishment of new right-of-use assets
|
||||||||
Establishment of new operating lease liability
|
( |
) | ||||||
Discount on issuance of convertible note
|
Table 3: Potentially Dilutive Securities | ||||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||
June 30, 2024
|
June 30, 2023
|
June 30, 2024
|
June 30, 2023
|
|||||||||||||
Total shares considered for dilution
|
|
|
|
|
Table 4: Details of Contract Receivables, Net | ||||||||
June 30, 2024
|
December 31, 2023
|
|||||||
(in thousands) | ||||||||
Billed receivables
|
$
|
|
$
|
|
||||
Unbilled receivables
|
|
|
||||||
Allowance for credit loss
|
(
|
)
|
(
|
)
|
||||
Contract receivables, net
|
$
|
|
$
|
|
• |
Embedded derivatives - Our convertible debt issued in February 2022, amended in June 2023 and our convertible debt issued in June 2023 (see Note 8 - Debt) includes
certain embedded redemption features that are required to be bifurcated as embedded derivatives and measured at fair value on a recurring basis. We estimate the fair value using a Monte Carlo simulation based on estimates of our future stock
price and assumptions about the possible redemption scenarios.
|
• |
Warrants - The Company used the Monte Carlo simulation model to determine the fair value of the Warrants, which required the input of subjective assumptions. (See
Note 8 - Debt)
|
• |
Cash-Settled PRSUs - The Company used the Monte Carlo simulation model to determine the fair value of the cash-settled PRSUs, which required the input of
subjective assumptions. All cash-settled PRSUs have been released or forfeited as of June 30, 2024.
|
Table 6.1 - Fair Value Measurements - Current Period
|
||||||||||||||||
|
As of June 30, 2024
|
|||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
(in thousands)
|
|||||||||||||||
Derivative liability
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Warrant liability
|
|
|
|
|
||||||||||||
Total liabilities
|
$
|
|
$
|
|
$
|
|
$
|
|
Table 6.2 - Fair Value Measurements - Prior Period
|
||||||||||||||||
|
As of December 31, 2023
|
|||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
(in thousands)
|
|||||||||||||||
Derivative liability
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Warrant liability
|
|
|
|
|
||||||||||||
Cash settled performance-vesting restricted stock units
|
|
|
|
|
||||||||||||
Total liabilities
|
$
|
|
$
|
|
$
|
|
$
|
|
Table 6.3 - Changes in Level 3 Fair Value Measurements for the Six Months Ended June 30, 2024
|
||||||||||||||||
|
Embedded
Derivatives
|
Warrant
|
Cash Settled
PRSUs
|
Level 3 Total
|
||||||||||||
|
(in thousands)
|
|||||||||||||||
Balance at December 31, 2023
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Change in fair value of
included on statement of operations |
(
|
)
|
|
|
|
|||||||||||
Stock compensation net of payments and forfeitures
|
|
|
(
|
)
|
(
|
)
|
||||||||||
Balance at June 30, 2024
|
$
|
|
$
|
|
$
|
|
$
|
|
Table 6.4 - Significant Unobservable Inputs Utilized for Level 3 as of June 30, 2024
|
||||||||||||
|
The “2022
Warrants”
|
2023
Convertible Note
|
The “2023
Warrants”
|
|||||||||
Exercise Price
|
$ |
|
$
|
|
$ |
|
||||||
Common Stock Price
|
|
|
|
|
||||||||
Risk Free Rate
|
|
%
|
|
%
|
|
%
|
||||||
Volatility
|
|
%
|
|
%
|
|
%
|
||||||
Term (in years)
|
|
|
|
Table 8.1: Details of Convertible Notes | ||||||||||||
2022
Convertible
Note
|
2023
Convertible
Note
|
Total
Convertible
Notes
|
||||||||||
(in thousands) |
||||||||||||
Convertible Note issued
|
$ | $ | $ | |||||||||
Debt discount
|
( |
) | ( |
) | ( |
) | ||||||
Issuance cost:
|
||||||||||||
Commitment fee
|
( |
) | ( |
) | ( |
) | ||||||
Balance of investor’s counsel fees
|
( |
) | ( |
) | ( |
) | ||||||
Net proceeds of Convertible Note
|
$ | $ | $ | |||||||||
Additional OID costs not in original funds flow | ( |
) | ( |
) | ( |
) | ||||||
Fair value of Warrant Liabilities on issuance | ( |
) | ( |
) | ( |
) | ||||||
Fair value of Conversion Feature on issuance | ( |
) | ( |
) | ( |
) | ||||||
Allocated OID costs to Warrants | ||||||||||||
Additional OID costs not in original funds flow
|
( |
) | ||||||||||
Interest expense accrued on Convertible Note as of June 30, 2024 | ||||||||||||
Principal and interest payments through June 30, 2024 | ( |
) | ( |
) | ( |
) | ||||||
Balance of Convertible Note as of June 30, 2024 | $ | $ | $ |
Table 8.2: Details of Debt Balances
|
||||||||
|
June 30,
2024
|
December 31,
2023
|
||||||
|
(in thousands)
|
|||||||
2022 Convertible Note
|
$
|
|
$
|
|
||||
2023 Convertible Note
|
|
|
||||||
Funded Debt
|
|
|
||||||
Less: Unamortized debt-issuance costs and discounts
|
(
|
)
|
(
|
)
|
||||
Total debt
|
|
|
||||||
Less: Current portion of long-term debt
|
(
|
)
|
(
|
)
|
||||
Long-term debt
|
$
|
|
$
|
|
Table 8.3: Details of Future Minimum Principal Payments Due
|
||||
Amount
|
||||
(in thousands)
|
||||
July 1, 2024 through December 31, 2024
|
$
|
|
||
January 1, 2025 through June 30, 2025
|
|
|||
$
|
|
Table 9.1: Revenue by Segment and Type
|
||||||||||||||||
|
For the Three Months Ended
|
For the Six Months Ended
|
||||||||||||||
June 30, 2024
|
June 30, 2023
|
June 30, 2024
|
June 30, 2023
|
|||||||||||||
|
(in thousands) | |||||||||||||||
Engineering | ||||||||||||||||
System Design and Build
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Over time
|
||||||||||||||||
Software and Support
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Training and Consulting Services
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Workforce Solutions | ||||||||||||||||
Training and Consulting Services
|
|
|
|
|
||||||||||||
Point in time
|
|
|
|
|
||||||||||||
Over time
|
|
|
|
|
||||||||||||
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
Table 9.2: Revenue Recognized that was Previously Included in Contract Liabilities
|
||||||||||||||||
|
For the Three Months Ended
|
For the Six Months Ended
|
||||||||||||||
June 30, 2024
|
June 30, 2023
|
June 30, 2024
|
June 30, 2023
|
|||||||||||||
(in thousands) | ||||||||||||||||
Revenue recognized in the period from amounts included in billings in excess of revenue earned at the beginning of the period
|
$
|
|
$
|
|
$
|
|
$
|
|
|
For the Three Months Ended
|
For the Six Months Ended
|
||||||||||||||
June 30,
2024
|
June 30,
2023
|
June 30,
2024
|
June 30,
2023
|
|
||||||||||||
Effective tax rate
|
(
|
)%
|
(
|
)%
|
(
|
)%
|
|
%
|
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||
|
June 30, 2024
|
June 30, 2023
|
June 30, 2024
|
June 30, 2023
|
||||||||||||
(in thousands) |
||||||||||||||||
Revenue
|
||||||||||||||||
Engineering
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Workforce Solutions
|
|
|
|
|
||||||||||||
Total revenue
|
|
|
|
|
||||||||||||
Gross profit
|
||||||||||||||||
Engineering
|
||||||||||||||||
Workforce Solutions
|
||||||||||||||||
Total gross profit
|
||||||||||||||||
Operating income (loss)
|
||||||||||||||||
Engineering
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
Workforce Solutions
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Operating income (loss)
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
Interest expense, net
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Change in fair value of derivative instruments, net |
(
|
)
|
|
(
|
)
|
|
||||||||||
Other (loss) income, net
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
Loss before income taxes
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Table MD&A 1: Results of Operations
|
||||||||||||||||||||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||||||||||||||||||
June 30, 2024
|
June 30, 2023
|
June 30, 2024
|
June 30, 2023
|
|||||||||||||||||||||||||||||
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
|||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||||||
Revenue
|
$
|
11,725
|
100.0
|
%
|
$
|
12,387
|
100.0
|
%
|
$
|
23,008
|
100.0
|
%
|
$
|
23,260
|
100.0
|
%
|
||||||||||||||||
Cost of revenue
|
8,051
|
68.7
|
%
|
9,172
|
74.0
|
%
|
16,118
|
70.1
|
%
|
17,650
|
75.9
|
%
|
||||||||||||||||||||
Gross profit
|
3,674
|
31.3
|
%
|
3,215
|
26.0
|
%
|
6,890
|
29.9
|
%
|
5,610
|
24.1
|
%
|
||||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||||||||||
Selling, general and administrative
|
3,070
|
26.2
|
%
|
3,653
|
29.5
|
%
|
7,430
|
32.3
|
%
|
8,441
|
36.3
|
%
|
||||||||||||||||||||
Research and development
|
118
|
1.0
|
%
|
154
|
1.2
|
%
|
347
|
1.5
|
%
|
335
|
1.4
|
%
|
||||||||||||||||||||
Restructuring charges
|
64
|
0.5
|
%
|
-
|
0.0
|
%
|
64
|
0.3
|
%
|
-
|
0.0
|
%
|
||||||||||||||||||||
Depreciation
|
50
|
0.4
|
%
|
53
|
0.4
|
%
|
108
|
0.5
|
%
|
101
|
0.4
|
%
|
||||||||||||||||||||
Amortization of intangible assets
|
83
|
0.7
|
%
|
131
|
1.1
|
%
|
182
|
0.8
|
%
|
292
|
1.3
|
%
|
||||||||||||||||||||
Total operating expenses
|
3,385
|
28.9
|
%
|
3,991
|
32.2
|
%
|
8,131
|
35.3
|
%
|
9,169
|
39.4
|
%
|
||||||||||||||||||||
Operating income (loss)
|
289
|
2.5
|
%
|
(776
|
)
|
(6.3
|
)%
|
(1,241
|
)
|
(5.5
|
)%
|
(3,559
|
)
|
(15.4
|
)%
|
|||||||||||||||||
Interest expense, net
|
(258
|
)
|
(2.2
|
)%
|
(767
|
)
|
(6.2
|
)%
|
(717
|
)
|
(3.1
|
)%
|
(1,053
|
)
|
(4.5
|
)%
|
||||||||||||||||
Change in fair value of derivative instruments, net
|
(736
|
)
|
(6.3
|
)%
|
171
|
1.4
|
%
|
(753
|
)
|
(3.3
|
)%
|
240
|
1.0
|
%
|
||||||||||||||||||
Other (loss) income, net
|
(47
|
)
|
(0.4
|
)%
|
(98
|
)
|
(0.8
|
)%
|
7
|
0.0
|
%
|
(88
|
)
|
(0.4
|
)%
|
|||||||||||||||||
Loss before income taxes
|
(752
|
)
|
(6.4
|
)%
|
(1,470
|
)
|
(11.9
|
)%
|
(2,704
|
)
|
(11.8
|
)%
|
(4,460
|
)
|
(19.2
|
)%
|
||||||||||||||||
Expense (benefit) from income taxes
|
102
|
0.9
|
%
|
28
|
0.2
|
%
|
142
|
0.6
|
%
|
(11
|
)
|
0.0
|
%
|
|||||||||||||||||||
Net loss
|
$
|
(854
|
)
|
(7.3
|
)%
|
$
|
(1,498
|
)
|
(12.1
|
)%
|
$
|
(2,846
|
)
|
(12.4
|
)%
|
$
|
(4,449
|
)
|
(19.1
|
)%
|
Table MD&A 2: Revenue by Segment
|
||||||||||||||||||||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||||||||
June 30, 2024
|
June 30, 2023
|
$ |
|
%
|
June 30, 2024
|
June 30, 2023
|
$ |
|
%
|
|||||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||||
Engineering
|
$
|
9,331
|
$
|
9,044
|
287
|
3
|
%
|
$
|
18,060
|
$
|
15,986
|
2,074
|
13
|
%
|
||||||||||||||||||
Workforce Solutions
|
2,394
|
3,343
|
(949
|
)
|
(28
|
)%
|
4,948
|
7,274
|
(2,326
|
)
|
(32
|
)%
|
||||||||||||||||||||
Total revenue
|
$
|
11,725
|
$
|
12,387
|
(662
|
)
|
(5
|
)%
|
$
|
23,008
|
$
|
23,260
|
(252
|
)
|
(1
|
)%
|
Table MD&A 3: Gross Profit by Segment
|
||||||||||||||||||||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||||||||||||||||||
June 30,
2024
|
June 30,
2023
|
June 30,
2024
|
June 30,
2023
|
|||||||||||||||||||||||||||||
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
$ |
|
%
|
|||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||||||
Gross profit:
|
||||||||||||||||||||||||||||||||
Engineering
|
$
|
3,282
|
35.2
|
%
|
$
|
2,742
|
30.3
|
%
|
$
|
6,187
|
34.3
|
%
|
$
|
4,622
|
28.9
|
%
|
||||||||||||||||
Workforce Solutions
|
392
|
16.4
|
%
|
473
|
14.1
|
%
|
703
|
14.2
|
%
|
988
|
13.6
|
%
|
||||||||||||||||||||
Total gross profit
|
$
|
3,674
|
31.3
|
%
|
$
|
3,215
|
26.0
|
%
|
$
|
6,890
|
29.9
|
%
|
$
|
5,610
|
24.1
|
%
|
Table MD&A 4: SG&A Details
|
||||||||||||||||
For the Three Months
Ended
|
For the Six Months
Ended
|
|||||||||||||||
June 30,
2024
|
June 30,
2023
|
June 30,
2024
|
June 30,
2023
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Corporate charges
|
$
|
2,396
|
$
|
2,446
|
$
|
5,892
|
$
|
5,932
|
||||||||
Business development
|
605
|
1,062
|
1,371
|
2,178
|
||||||||||||
Facility operation & maintenance (O&M)
|
55
|
146
|
94
|
287
|
||||||||||||
Credit loss expense
|
9
|
(2
|
) |
65
|
30
|
|||||||||||
Other
|
5
|
1
|
8
|
14
|
||||||||||||
Total
|
$
|
3,070
|
$
|
3,653
|
$
|
7,430
|
$
|
8,441
|
Table MD&A 5: Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
|
||||||||||||||||
For The Three Months Ended
|
For The Six Months Ended
|
|||||||||||||||
June 30, 2024
|
June 30, 2023
|
June 30, 2024
|
June 30, 2023
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Net loss
|
$
|
(854
|
)
|
$
|
(1,498
|
)
|
$
|
(2,846
|
)
|
$
|
(4,449
|
)
|
||||
Interest expense, net
|
258
|
767
|
717
|
1,053
|
||||||||||||
Expense (benefit) from income taxes
|
102
|
28
|
142
|
(11
|
)
|
|||||||||||
Depreciation and amortization
|
228
|
267
|
487
|
560
|
||||||||||||
EBITDA
|
(266
|
)
|
(436
|
)
|
(1,500
|
)
|
(2,847
|
)
|
||||||||
Stock-based compensation expense
|
(274
|
)
|
246
|
20
|
531
|
|||||||||||
Change in fair value of derivative instruments, net
|
736
|
(171
|
)
|
753
|
(240
|
)
|
||||||||||
Restructuring charges
|
64
|
-
|
64
|
-
|
||||||||||||
Advisory fees
|
300
|
-
|
776
|
-
|
||||||||||||
Adjusted EBITDA
|
$
|
560
|
$
|
(361
|
)
|
$
|
113
|
$
|
(2,556
|
)
|
Table MD&A 6: Reconciliation of Net Loss to Adjusted Net Loss and Adjusted Net Loss Per Share
|
||||||||||||||||
For The Three Months
Ended
|
For The Six Months
Ended
|
|||||||||||||||
June 30,
2024
|
June 30,
2023
|
June 30,
2024
|
June 30,
2023
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Net loss
|
$
|
(854
|
)
|
$
|
(1,498
|
)
|
$
|
(2,846
|
)
|
$
|
(4,449
|
)
|
||||
Stock-based compensation expense
|
(274
|
)
|
246
|
20
|
531
|
|||||||||||
Change in fair value of derivative instruments, net
|
736
|
(171
|
)
|
753
|
(240
|
)
|
||||||||||
Restructuring charges
|
64
|
-
|
64
|
-
|
||||||||||||
Advisory fees
|
300
|
-
|
776
|
-
|
||||||||||||
Amortization of intangible assets related to acquisitions
|
83
|
131
|
182
|
292
|
||||||||||||
Adjusted net income (loss)
|
$
|
55
|
$
|
(1,292
|
)
|
$
|
(1,051
|
)
|
$
|
(3,866
|
)
|
|||||
Net loss per common share - diluted
|
$
|
(0.26
|
)
|
$
|
(0.62
|
)
|
$
|
(0.89
|
)
|
$
|
(1.89
|
)
|
||||
Add back: Effect of stock-based compensation
|
(0.08
|
)
|
0.11
|
0.01
|
0.24
|
|||||||||||
Add back: Effect of change in fair value of derivative instruments, net
|
0.22
|
(0.07
|
)
|
0.23
|
(0.11
|
)
|
||||||||||
Add back: Effect of restructuring charges
|
0.02
|
-
|
0.02
|
-
|
||||||||||||
Add back: Effect of advisory fees
|
0.09
|
-
|
0.24
|
-
|
||||||||||||
Add back: Effect of amortization of intangible assets related to acquisitions
|
0.03
|
0.05
|
0.06
|
0.12
|
||||||||||||
Adjusted net loss per common share – diluted
|
$
|
0.02
|
$
|
(0.53
|
)
|
$
|
(0.33
|
)
|
$
|
(1.64
|
)
|
|||||
Weighted average shares outstanding used to compute adjusted net loss per share - diluted(1)
|
3,258,124
|
2,418,827
|
3,148,806
|
2,293,389
|
Item 3. |
Quantitative and Qualitative Disclosure about Market Risk
|
Item 4. |
Controls and Procedures
|
Item 1. |
Legal Proceedings
|
Item 1A. |
Risk Factors
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
Item 3. |
Defaults Upon Senior Securities
|
Item 4. |
Mine Safety Disclosures
|
Item 5. |
Other Information
|
Item 6. |
Exhibits
|
Exhibit No.
|
Description of Exhibit
|
|
Employment Agreement, dated January 1, 2019, by and between GSE Systems, Inc. and Ravi Khanna. Incorporated herein by reference to Exhibit 10.1 of Form 8-K filed with the Securities and
Exchange Commission on April 30, 2024.
|
||
Amendment to Employment Agreement, dated November 24, 2020, by and between GSE Systems, Inc. and Ravi Khanna. Incorporated herein by reference to Exhibit 10.2 of Form 8-K filed with the
Securities and Exchange Commission on April 30, 2024.
|
||
10.3 |
Letter Agreement, dated April 30, 2024, by and between GSE Systems, Inc. and Ravi Khanna. Incorporated herein by reference to Exhibit 10.3 of Form 8-K filed with the Securities and Exchange Commission on April
30, 2024.
|
|
Separation Agreement, dated April 30, 2024, including Amendment to Restricted Share Unit Agreements (attached as Exhibit A), by and between GSE Systems, Inc. and Kyle J. Loudermilk.
Incorporated herein by reference to Exhibit 10.4 of Form 8-K filed with the Securities and Exchange Commission on April 30, 2024.
|
||
10.5 |
Employment Agreement, dated July 22, 2024, by and between GSE Systems, Inc. and Ravi Khanna. Incorporated herein by reference to Exhibit 10.1 of Form 8-K filed with the Securities and Exchange Commission on July
26, 2024.
|
|
31.1 €
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002, filed herewith.
|
|
31.2 €
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
32.1 £
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
101.INS €
|
XBRL Instance Document.
|
|
101.SCH €
|
XBRL Taxonomy Extension Schema.
|
|
101.CAL €
|
XBRL Taxonomy Extension Calculation Linkbase.
|
|
101.DEF €
|
XBRL Taxonomy Extension Definition Linkbase.
|
|
101.LAB €
|
XBRL Taxonomy Extension Label Linkbase.
|
|
101.PRE €
|
XBRL Taxonomy Extension Presentation Linkbase.
|
GSE SYSTEMS, INC.
|
||||
/s/ Ravi Khanna
|
August 14, 2024
|
|||
By:
|
Ravi Khanna
|
|||
President and Chief Executive Officer
|
||||
(Principal Executive Officer)
|
||||
/s/ Emmett A. Pepe
|
August 14, 2024
|
|||
By:
|
Emmett A. Pepe
|
|||
Chief Financial Officer
|
||||
(Principal Financial and Accounting Officer)
|