GSE Systems Reports Fourth Quarter and Fiscal 2022 Financial Results

Management Commentary

“Fiscal 2022 was a busy year for GSE. The ongoing investments we have made in the company during 2022 include putting master services agreements in place with key utility customers, which eases the path to purchase our capabilities across the entire breadth of our business; we have rebuilt our sales and recruiting teams in Workforce Solutions; and we are glad to have hired a new head of sales early this year who is respected and well connected within the nuclear power industry. While industry spend has yet to return to pre-pandemic levels, we have been diligent during the year to be in front of customers to promote the business and align ourselves to their needs, remain a lean organization and preserve our capital structure to align the company to future opportunities. These efforts have begun to show initial progress during the fourth quarter, such as the sequential growth in Workforce Solutions Orders, and into early 2023 as exemplified by the successful renewal and expansion of a sizable, long-term agreement with US Government engineering laboratories that work directly with the US Navy. Other wins subsequent to Q4 close should significantly enhance the Company’s backlog to more typical levels,” commented Kyle J. Loudermilk, GSE’s President and Chief Executive Officer.

“We are pleased with the recent wins we’ve reported and are positioned for what we expect to be improved industry spending moving forward. While the industry is still timid with the timing and release of projects in general, many customers are in the midst of their planning process for future capital investment and maintenance programs. We are eager for this planning to move to the execution phase, at which point more business should flow to the vendor ecosystem. The outlook for the industry has not looked this positive in decades, especially given the legislation that has been passed in the recent years to strengthen the nuclear industry for the foreseeable future,” added Mr. Loudermilk.

Emmett Pepe, CFO of GSE Systems, added, “During fiscal 2022 we were able to make certain investments in our business development teams and changes in our back office while maintaining tight expense controls. The back-office changes include systems integrations, process improvement and bolstering our accounting team. While some orders received cascaded into early 2023, these wins have replenished our backlog to more historical levels and reveal that our pipeline remains very active. As part of the company’s goal to return to profitability we continue to be proactive in pursuing additional cost containment measures, while many of these are initiatives for 2023, we achieved some savings in Q4 2022 which help offset growth investment The company’s balance sheet remained stable as cash, cash equivalents and restricted cash at the end of Q4 2022 was $4.4m.”

Q4 2022 FINANCIAL RESULTS

Revenue during Q4 2022 was $10.8 million, a decrease of 9% compared to revenue of $11.9 million in Q3 2022, and revenue was $13.9 million in Q4 2021. The year-over-year decrease of $3.1 million was primarily due to the wind down of large projects in 2022 resulting in a reduction of staffing from our major customers, which continues to affect the power industry.

Engineering revenue was $7.5 million in Q4 2022 compared to $8.1 million in Q3 2022, and $6.8 million in Q4 2021. The year over year change was primarily attributable to the projects awarded with higher margins and improved processes in 2022.

Workforce Solutions revenue was $3.3 million in Q4 2022 compared to $3.8 million in Q3 2022, and $7.0 million in Q4 2021. The year over year decrease was due to the reduction in customer demand for Workforce Solutions.

Gross profit in Q4 2022 was $3.1 million, or 28.2% of revenue. This compared to gross profit of $3.1 million, or 22.0% of revenue in Q4 2021, and $3.3 million, or 27.0% of revenue in Q3 2022. The increase in gross margin was primarily related to improved mix of higher margins projects, shorter lead times and improved processes.

Operating expenses in Q4 2022 were $4.1 million compared to $4.9 million in Q4 2021, with the decrease due to an impairment of unbilled receivables of $0.8 million taken in Q4 2021.

Operating loss was approximately $(1.1) million in Q4 2022, compared to $(1.8) million in Q4 2021 and operating loss was $(9.0) million in Q3 2022, and the increase was due to a $7.5 million goodwill and intangible asset impairment charge in Q3 2022.

Net loss in Q4 2022 was $(1.5) million or $(0.07) per basic and diluted share, compared to net loss of $(1.9) million or $(0.09) per basic and diluted share in Q4 2021.

Adjusted net loss¹ totaled $(1.1) million, or $(0.05) per diluted share in Q4 2022, Q4 2021 and Q3 2022.

Adjusted EBITDA¹ totaled $(0.4) million in Q4 2022, compared to $(1.1) million in Q4 2021 and $(0.7) million in Q3 2022.

Backlog at December 31, 2022, was $32.9 million, including $23.8 million of Engineering backlog, and $9.1 million of Workforce Solutions.

2022 FULL YEAR RECAP

Revenue in 2022 was $47.7 million a decrease of 13.5% compared to $55.2 million in 2021. The year over year decrease of $7.4 million was primarily due to due a wind down of large projects and a reduction in demand for staffing from our major customers as reflected in the reduction in orders.

Engineering revenue was $29.9 million in 2022 compared to $28.1 million in 2021. The year over year increase was primarily due to increased work on POC projects and improved utilization of personnel on T&M projects.

Workforce Solutions revenue was $17.8 million in 2022 compared to $27.0 million in 2021. The year over year decrease in revenue was primarily due a wind down of large projects and a reduction in demand for staffing from our major customers as reflected in the reduction in orders.

Gross profit in 2022 was $11.9 million, or 25.0% of revenue. This compared to gross profit of $11.9 million, or 21.5% of revenue in 2021. The increase in gross margin is primarily related to improved mix of higher margins projects, shorter lead times and improved processes.

Operating expenses in 2022 were $26.3 million compared to $17.8 million in 2021, and the increase was due to a $7.5 million goodwill and intangible asset impairment charge in 2022.

Operating loss was approximately $(14.4) million in 2022, compared to $(6.0) million in 2021.

Net loss in 2022 was $(15.3) million or $(0.72) per basic and diluted share, compared to net income of $10.6 million or $0.51 per basic and diluted share in 2021.

Adjusted net loss¹ totaled $(5.5) million, or $(0.26) per diluted share in 2022, compared to adjusted net loss of $(2.9) million, or $(0.14) per diluted share, in 2021.

Adjusted EBITDA¹ totaled $(3.5) million in 2022, compared to $(2.2) million in 2021.

¹ Refer to the non-GAAP reconciliation tables at the end of this press release for a definition of “EBITDA”, “adjusted EBITDA” and “adjusted net income”.

CONFERENCE CALL

GSE Systems has scheduled a conference call for today, March 30, 2023 at 4:30 p.m. ET (1:30 p.m. PT) to review these results. Interested parties can access the conference call by dialing (833) 974-2453 or (412) 317-5784 or can listen via a live Internet webcast at: https://app.webinar.net/9WOQrgvYE0K. Access to the link is also available in the Investor Relations section of the Company’s website at: https://www.gses.com/about/investors/.

A teleconference replay of the call will be available for seven days at (877) 344-7529 or (412) 317-0088, confirmation # 5336388. A webcast replay will be available in the Investor Relations section of the Company’s website at https://www.gses.com/about/investors/ for 90 days.

ABOUT GSE SOLUTIONS

Proven by more than 50 years of experience in the nuclear power industry, GSE knows what it takes to help customers deliver carbon-free electricity safely and reliably. Today, GSE Solutions leverages top talent, expertise, and technology to help energy facilities achieve next-level power plant performance. GSE’s advanced Engineering and Workforce Solutions divisions offer highly specialized training, engineering design, program compliance, simulation, and technical staffing that reduce risk and optimize plant operations. With more than 1,100 installations and hundreds of customers in over 50 countries, GSE delivers operational excellence. 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.

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

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 the impact of litigation, goodwill and intangible asset impairment charge, employee retention credit, PPP loan and accumulated interest, restructuring charges, stock-based compensation expense, change in fair value of derivative instruments, and VAT write-off. 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 our results because it excludes certain items that are not directly related to our 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. This measure 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:

Adjusted Net Income and Adjusted EPS Reconciliation (in thousands, except per share amounts)

References to Adjusted net (loss) income exclude the impact of litigation, goodwill and intangible asset impairment charge, employee retention credit, PPP loan and accumulated interest, restructuring charges, stock-based compensation expense, change in fair value of derivative instruments, VAT write-off, amortization of intangible assets related to acquisitions, release of valuation allowance, and income tax expense impact of adjustments. Adjusted Net Income and adjusted earnings per share (adjusted EPS) are not measures of financial performance under GAAP. Management believes adjusted net income and adjusted EPS, in addition to other GAAP measures, are useful to investors to evaluate our results because they exclude certain items that are not directly related to our core operating performance and non-cash items 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: