GSE Systems Announces Third Quarter 2017 Financial Results

11/14/17

SYKESVILLE, Md.--(BUSINESS WIRE)--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.

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.

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; Nyköping, Sweden; Stockton-on-Tees, UK; and Beijing, China. Information about GSE Systems is available at www.gses.com.

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