GSE Systems, Inc. (GSE or the Company) (NYSE American:
GVP), the world leader in real-time high-fidelity simulation
systems and training/consulting solutions to the power and process
industries, today announced financial results for the third quarter
(Q3) ended September 30, 2017.
Q3 2017 OVERVIEW
- Acquired Absolute Consulting on
September 20, adding approximately $40 million in LTM revenue.
- Revenue increased 6.8% to $15.4 million
from $14.4 million in Q3 2016.
- Gross profit rose 5.7% to $4.2 million
from $4.0 million in Q3 2016.
- Net loss totaled ($0.6) million, or
($0.03) per diluted share, compared to net income of $0.2 million,
or $0.01 per diluted share, in Q3 2016.
- Adjusted net income1 increased 65.3% to
$0.6 million, or $0.03 per diluted share, from $0.4 million, or
$0.02 per diluted share, in Q3 2016.
- Adjusted EBITDA increased 31.0% to $0.9
million from $0.7 million in Q3 2016.
- New orders totaled $9.2 million in Q3
2017.
- Cash flow provided by operations was
$0.3 million compared to $2.8 million in Q3 2016.
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”.
At September 30, 2017
- Cash and equivalents of $16.5 million,
including $1.0 million of restricted cash, compared to $22.9
million, including $1.1 million of restricted cash, at December 31,
2016.
- Working capital of $11.0 million and
current ratio of 1.4x.
- No outstanding long-term debt.
- Backlog totaled $76.4 million, compared
to $73.2 million at December 31, 2016.
Kyle J. Loudermilk, GSE's President and Chief Executive Officer,
said, "In Q3 2017, GSE delivered year-over-year growth in revenue,
adjusted net income and adjusted EBITDA. We completed our
acquisition of Absolute Consulting, significantly enhancing GSE’s
position as the ‘go to’ provider of consulting solutions to the
power industry, with a particular focus on nuclear power. Our
combination with Absolute makes us a company of scale, with
trailing twelve-month revenue of approximately $100 million. It is
also a significant proof point of our thesis that GSE is a terrific
platform for consolidating a fragmented vendor ecosystem for
nuclear power. Absolute Consulting will begin to contribute
meaningfully to our consolidated results in the fourth quarter. Our
backlog remains strong, reflecting our focus on organic business
initiatives and operational execution. We ended the quarter with
approximately $16.5 million of cash and no debt. I am delighted
with our progress so far in 2017, and with a robust and active
M&A pipeline, we look forward to scaling GSE further."
Q3 2017 RESULTS
Q3 2017 revenue increased 6.8% to $15.4 million, from $14.4
million in Q3 2016, driven by a 58.4% rise in Nuclear Industry
Training and Consulting revenue, primarily resulting from an
increase of $1.5 million due to higher staffing demand from a major
customer and ten days of revenue of $1.2 million from Absolute
Consulting following its acquisition. These increases were
partially offset by a 14.5% decrease in Performance Improvement
Solutions revenue, mainly due to lower revenues from our foreign
subsidiaries of approximately $0.8 million and a revenue adjustment
of approximately $0.5 million related to a customer contract, which
was offset by a similar adjustment to cost of revenue.
(in thousands)
Three months ended
Nine months ended September 30, September
30, Revenue 2017 2016 2017
2016 (unaudited) (unaudited) (unaudited) (unaudited)
Performance Improvement Solutions $8,737 $10,215 $30,093 $27,382
Nuclear Industry Training and Consulting 6,672 4,213 18,783 12,438
Total Revenue $15,409 $14,428 $48,876 $39,820
Performance Improvement Solutions new orders totaled $2.9
million in Q3 2017 compared to $10.2 million in Q3 2016. Due to
timing difference, a few key orders slipped into the fourth
quarter. Nuclear Industry Training and Consulting new orders
totaled $6.3 million in Q3 2017 compared to $3.6 million in Q3
2016.
Q3 2017 gross profit increased to $4.2 million, or 27.4% of
revenue, from $4.0 million, or 27.7% of revenue, in Q3 2016.
(in thousands)
Three months ended
Nine months ended September 30, September
30, Gross Profit: 2017 %
2016 % 2017 %
2016 % (unaudited) (unaudited)
(unaudited) (unaudited) Performance Improvement Solutions
$2,904 33.2% $3,507 34.3% $10,337 34.3% $9,871
36.0% Nuclear Industry Training and Consulting 1,320 19.8%
491 11.7% 3,026 16.1% 1,620 13.0% Total Gross Profit $4,224 27.4%
$3,998 27.7% $13,363 27.3% $11,491 28.9%
Performance Improvement Solutions gross profit for Q3 2017 was
$2.9 million, or 33.2% gross margin, compared to $3.5 million, or
34.3% gross margin, in Q3 2016. The year over year decrease in
gross profit percentage for Performance Improvement Solutions
during Q3 2017 was primarily driven by three major nuclear
simulation projects with lower margin.
Nuclear Industry Training and Consulting gross profit for Q3
2017 was $1.3 million, or 19.8% gross margin, compared to
approximately $0.5 million, or 11.7% gross margin, in Q3 2016. The
year over year increase in Nuclear Industry Consulting and Training
gross profit percentage for Q3 2017 was primarily driven by the
change in the mix of projects with higher margins, which reflected
the segment's focus on entering higher margin contracts.
Selling, general and administrative expenses in Q3 2017 totaled
$4.4 million, or 28.4% of revenue, compared to $2.9 million, or
20.3% of revenue, in Q3 2016. The increase in selling, general, and
administrative expenses was primarily due to $0.7 million of higher
contingent consideration expense related to the fair value
adjustments related to the Company's November 2014 Hyperspring
acquisition, the one-time transaction costs of $0.5 million related
to the acquisition of Absolute Consulting on September 20, 2017,
and a higher non-cash stock compensation expense of $0.2
million.
Research and development costs, net of capitalized software,
totaled approximately $0.4 million for Q3 2017 and Q3 2016,
respectively.
Operating loss was approximately $(0.6) million in Q3 2017,
compared to operating income of approximately $0.4 million in Q3
2016.
Net loss for Q3 2017 totaled approximately ($0.6) million, or
($0.03) per basic and diluted share, compared to net income of
approximately $0.2 million, or $0.01 per basic and diluted share,
in Q3 2016.
Adjusted net income, excluding the impact of gain/loss from the
change in fair value of contingent consideration, restructuring
charges, stock-based compensation expense, consulting support for
finance restructuring, acquisition-related expenses, and
Westinghouse bankruptcy related charges increased to approximately
$0.6 million, or $0.03 per diluted share, compared to approximately
$0.4 million, or $0.02 per diluted share, in Q3 2016.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) for Q3 2017 was $(0.3) million compared to $0.5 million in
Q3 2016.
Adjusted EBITDA, which excludes the impact of gain/loss from the
change in fair value of contingent consideration, restructuring
charges, stock-based compensation expense, consulting support for
finance restructuring, acquisition-related expenses, and
Westinghouse bankruptcy related charges, totaled approximately $0.9
million in Q3 2017, compared to approximately $0.7 million in Q3
2016.
BACKLOG AND CASH
POSITION
Backlog at September 30, 2017, totaled $76.4 million compared to
$73.2 million at December 31, 2016. Backlog at September 30, 2017,
included $51.8 million of Performance Improvement Solutions backlog
and $24.6 million of Nuclear Industry Training and Consulting
backlog, $12.7 million of which was attributable to Absolute. At
December 31, 2016, the Company's backlog was $73.2 million: $68.8
million for the Performance Improvement Solutions business segment
and $4.4 million for Nuclear Industry Training and Consulting.
Excluding Absolute, total backlog decreased approximately $9.5
million from $73.2 million at December 31, 2016 to $63.7 million at
September 30, 2017. The decrease in backlog is primarily due to
2016 backlog that was converted to revenues during 2017 and has
only been partially backfilled by new orders. Excluding Absolute,
Nuclear Industry Training and Consulting's backlog increased $7.5
million during 2017 primarily due to increased orders from
Hyperspring's two largest customers.
GSE’s cash position at September 30, 2017, was $16.5 million,
including $1.0 million of restricted cash, compared to $22.9
million, including $1.1 million of restricted cash, at December 31,
2016. The decrease in cash was primarily due to the all-cash
acquisition of Absolute during Q3 2017 for $8.9 million, which
included a pre-closing working capital adjustment of $0.1
million.
CONFERENCE CALL
Management will host a conference call today at 4:30 pm Eastern
Time to discuss Q3 results and 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:http://www.investorcalendar.com/event/21370
For those who cannot listen to the live broadcast, an online
webcast replay will be available at www.gses.com or through
February 14, 2018 at the following
link:http://www.investorcalendar.com/event/21370
ABOUT GSE SYSTEMS,
INC.
GSE Systems, Inc. is a world leader in real-time high-fidelity
simulation, providing a wide range of simulation, training,
consulting, and engineering solutions to the power and process
industries. Its comprehensive and modular solutions help customers
achieve performance excellence in design, training and operations.
GSE’s products and services are tailored to meet specific client
requirements such as scope, budget and timeline. 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 Sykesville (Baltimore), Maryland, with
offices in Navarre, Florida; Huntsville, Alabama; Chennai, India;
Nyk�ping, Sweden; Stockton-on-Tees, UK; 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.
GSE SYSTEMS, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of
Operations
(in thousands, except share and per share
data)
Three Months ended Nine
Months ended September 30, September 30,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue
$15,409
$14,428
$48,876
$39,820
Cost of revenue 11,185 10,430 35,513 28,329 Gross profit 4,224
3,998 13,363 11,491 Selling, general and administrative
4,374 2,936 11,740 8,606 Research and development 353 381 1,103
1,010 Restructuring charges - 85 45 487 Depreciation 79 91 254 294
Amortization of definite-lived intangible assets 50 72 148 219
Operating expenses 4,856 3,565 13,290 10,616
Operating income (632) 433 73 875 Interest income,
net 15 11 60 52 Gain (loss) on derivative instruments, net 71 (211)
226 (346) Other income (expense), net 33 15 (4) 112 (Loss)
income before income taxes (513) 248 355 693 Provision for
income taxes 92 80 399 275 Net (loss)
income ($605) $168 ($44) $418 Basic earnings per common
share ($0.03) $0.01 $0.00 $0.02 Diluted earnings per common share
($0.03) $0.01 $0.00 $0.02 Weighted average shares
outstanding - Basic 19,280,770 18,230,148 19,204,778 18,052,019
Weighted average shares outstanding - Diluted 19,280,770 18,470,117
19,204,778 18,287,870
GSE SYSTEMS, INC AND
SUBSIDIARIES
Selected Balance Sheet Data (in
thousands)
(unaudited)
September 30, 2017
December 31, 2016 Cash and cash equivalents $15,525 $21,747
Restricted cash – current 960 1,140 Current assets 38,057 43,802
Total assets 51,038 53,656 Current liabilities $27,010
$31,386 Long-term liabilities 1,515 1,149 Stockholders' equity
22,513 21,121
EBITDA and Adjusted EBITDA
Reconciliation (in thousands)
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 Nine Months ended
September 30,
September 30, 2017 2016 2017
2016 (unaudited) (unaudited) (unaudited) (unaudited)
Net (loss) income ($605) $168 ($44) $418 Interest income, net (15)
(11) (60) (52) Provision for income taxes 92 80 399 275
Depreciation and amortization 247 276 754 809 EBITDA (281) 513
1,049 1,450
Loss (gain) from the change in fair value
of contingentconsideration
139 (525) 436 (370) Restructuring charges - 85 45 487 Stock-based
compensation expense 627 412 1,873 900 Consulting support for
finance restructuring - 232 - 310 Acquisition-related expense 454 -
473 - Westinghouse bankruptcy related expense - - 122 - Adjusted
EBITDA $ 939 $ 717 $ 3,998 $ 2,777
Adjusted Net Income and Adjusted EPS
Reconciliation (in thousands, except per share amounts)
Adjusted Net Income and adjusted earnings (loss) 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 Nine Months ended
September 30,
September 30, 2017 2016 2017
2016 (unaudited) (unaudited) (unaudited) (unaudited)
Net income ($605) $168 ($44)
$418
Gain/loss from the change in fair value of
contingentconsideration
139 (525) 436 (370) Restructuring charges - 85 45 487 Stock-based
compensation expense 627 412 1,873 900 Consulting support for
finance restructuring - 232 - 310 Acquisition-related expense 454 -
473 - Westinghouse bankruptcy related expense - - 122 - Adjusted
net income $615 $372 $2,905 $1,745 Earnings per share -
diluted $(0.03) $0.01 $0.00 $0.02 Adjusted earnings per
share - diluted (a) $0.03 $0.02 $0.15 $0.10 Weighted average
shares outstanding - Diluted (a) 19,702,742 18,470,117 19,601,661
18,287,870
(a) During the three months and nine months ended September 30,
2017, the Company reported a GAAP net loss and positive adjusted
net income. Accordingly, there were 421,972 and 396,883 dilutive
shares from options and RSUs included in the adjusted earnings per
common share calculation for the three and nine months ended
September 30, 2017, respectively, that were considered
anti-dilutive in determining the GAAP diluted loss per common
share.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171114006478/en/
CompanyGSE Systems, Inc.Chris SorrellsChief Operating
Officer410-970-7802orThe Equity Group Inc.Devin
SullivanSenior Vice
President212-836-9608dsullivan@equityny.comorKalle
Ahl, CFASenior
Associate212-836-9614kahl@equityny.com
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