GVP - Earnings call transcript Q3 2018

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Operator

Greetings and welcome to the GSE Systems Inc.

Third Quarter 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kalle Ahl of The Equity Group. Thank you.

begin. may You

Kalle Ahl

and us Matt everyone. you Thank Thank good joining today. for you, afternoon

such begin, will, could, and to that and risks that guarantees not These not maybe expectations Before forward-looking. statements would forward-looking uncertainties of and cause their of Section I we like XXXX. may, Securities the of should, expressions not projected. could results. the anticipate are within meaning those important performance or believe, future to as Act of concerning the actual are does XXA are statements Act of statements, made as be expect, of remind current and course this and XXE other words intend, achievements forward-looking future absence statements call mean similar is amended statements to Words identify reflect a considered XXXX performance the events statement used of and materially Section from during factors that to everyone These subject but different are Securities

and and considered resource believes operating competitors. benefit evaluating results risks, decisions to This of reports events GSE’s company’s information non-GAAP to other should Management such investors not to Risk these historical GSE supplemental future in figures, useful, figures may as well management’s Forward-Looking its Investors facilitates or forward-looking comparisons Accepted Accounting Since to information allocation. operating management Management measures measures employee update full GAAP non-GAAP net comparable as both believes the which GAAP. titled not of planning, These operating these that the to GAAP as results finds the regarding or of otherwise. GSE’s to recognize addition results. statements does measures and by this the performance Generally revise meaningful financial and EBITDA Factors evaluate of Commission, performance. might a compensation those that similarly be should make Exchange companies. information, be performance these measures adjusted non-GAAP internal to Securities not these and to refer the to in or Regulation Executive Officer file to On non-GAAP A Statements G operational certain other uncertainties release. documents the not or please of discussion would of Mr. management encouraged any under and any can factors, go in you non-GAAP of with that be of substitute forth these measures with and Kyle, adjusted over as directly provide comparable budgeting, income to of SEC result ahead. EBITDA, prepared measures, found now whether I GAAP GSE Kyle like the in uses measures Loudermilk, addition Principles, turn earnings Systems. set section. business in reconciliation for including intend to are superior measures their measure Chief with accordance performance may a new most filed to company’s read GSE’s GSE GAAP. as under and For periodic in call, are accordance call on a

Kyle Loudermilk

from Sorrells, and to million financial Absolute Emmett to GSE’s like quarter revenue XX% GSE by pleased I adjusted Financial Pepe, call. third driven North am Thanks, year-over-year grew XX% Operating our True would the call Kalle results $X.X today’s Chief Systems’ and to our I which and at are Chris $XX.X our afternoon. everyone million testament on under and Chief welcome good XXXX Also www.gses.com not increased and if you to conference by to quarter we press had to GSE’s be have website May release Consulting, a GSE financial a our issued have News third review can our this quarter far joined our Hopefully, news copy XXXX release, third contributions covering we purchased found today, you that but chance in Earlier since a year-over-year on to Officer. a results. is I This EBITDA Consulting, September in section. which team our and we XXXX is growth best XXXX. acquired report strategy. Officer

New and orders was greater the million $XX.X year strong prior Xx orders were quarter. which totaled in our approximately than

rose This sharply million million from orders, the were X to implemented a to Slovakia we which $X the schedule. in update first million than in XXXX. $XX Elektrarne Solution simulator, Improvement Unit XXXX. quarter awarded highest the XX-month Mochovce quarter’s since were & we compared contract to less over Solution’s third of Among orders new than of Slovenske Performance Performance more a $X.X the Improvement quarter X orders

to from of to support Our to to Slovenske when upgrade States, QX, Also subcontractor Korea a The simulator simulator. serving services initial for is project to a in continuation simulation benefit core we U.S. modestly wind gross Elektrarne lower two we contract in final contribute pass margin our United to needs. February received X global but that the enter than team X the our The the simulator to done segment. firm. in and has million to scope complex engineer the contract X full the a million been This to GSE government continue total for phases. a with approximately optional is to bring value another approximately dedicated systems. Power over of additional and $XX from plant I successful needs. overall that operator million XXXXs GSE’s Nuclear we include years on update to the awarded States $X.X revenue successfully major XXXX Performance X year ability Solutions work design, in areas. engineering and would $XX much will the exceed from GSE critical our project that construction It services financial deliver providing phenomenal this In large This back engineering at magnitude This the scope in for a like Mochovce and to simulation last to results provide I February its our technology relationship executing Navy. engineers delivered specialists. million. once-in-a-generation is & significant the XXXX as would worth management proud order XXXX and a work to support in undertaken the XXXX laboratories test years, a Unit decades the with A our as provide down totaling contract goes annual X say showcases is & the nuclear meet latest $X.X client’s training we Korea schedule. Unit were simulator and contributed accomplishment project and over comprehensive full important to Hydro to Company’s three landmark an upgrade and all solutions seventh in two not am past XX-month we United has

backlog COO. EBITDA and our revenue the proud million strong executing to deliver team’s long-term scale Industry remains creation focused the the are consisted and Our at of the Total rolling conclusion, of million down the These strategy In XXXX to $XX million end and sustainable we backlog Solutions X for with numbers XXXX. in on path backlog, quarter Training very given $XX.X stakeholders. Nuclear compared nuclear are will are Consulting solid Chris, growing X of backlog strategy please serving development ahead. to by which our corporate backlog. Sorrells, the go $XX.X full fractured ecosystem effectuating to vision backlog trading portfolio discipline. Chris over of our at execution roughly significant and driving operator, operationally Performance million to end Performance by of burn am backlog potential and Improvement in believe $XX.X ago. also we million a for I the reflects of utility growth accounted are in up solutions Southern months of industry. years and signed $XX our simulator we right sales our power for I The scope Solution first the call we the for solid as nuclear turn on year our value over related our executing backlog project when

Chris Sorrells

Kyle. Thanks,

pleased like and they excited continued our to prospects to we our as heading to-date perform well. XXXX are Kyle quarter As about We are third our performance. noted, acquisitions year-to-date and with

periods The it the off first financial the X power the company’s inorganically. one potential to best company and and months performance strategy and history build in GSE’s take ecosystem fractured up through the our nuclear scale of vendor is to goal the both value of XXXX organically a and represents momentum create in industry. rolling strong of this in our significant XXXX demonstrates

expectations. North’s this profit quarter we price a Even mix in True to on cash at based system GAAP projects, or year using of of revenue is fixed acquisitions, our with North’s accounting accounting performing very percent typical to Regarding some perform in price to the with cash-based fixed above business delays True is complete acquisition heavy the previously Hyperspring line an contracts. first encountered on and expectations. due this transition continues though

over the to we internal recent performing plans close our adjusted made Absolute’s Finally, period and some to XX% EBITDA benefit was in changes from XXXX. Absolute up pre-acquisition is and

last cross-selling with As on working we North. I on call, are well our True noted exceptionally opportunities

we of independent are have our who the is with quarter, This software bid at expanded For not example our leverage we defining how build executives, would and process the on we intense now final if an the with the RRP and strategies. driving competition, of third decision. another. round presentation Increasingly, we short-listed platform a awaiting a were great to the and table final intend are of were and innovative customer we driving to Despite market one that share in project mindshare client customer. getting possible out been are seat example the

profile providing with As group to tightly expect barriers-to-entry, with create solutions highly we we to of customers. acquisition elevate technical GSE’s candidates, continue a our further complementary high woven

that critical perform In may challenges for of we projects employees working a work to solves industry. require subsidiaries that various addition, combination the on us to from are utilize

to grows, ourselves to from As our competition. allow platform the we this opportunity us distinguish expect further

a Moving remains value. to a remain we on pipeline earnings in we base and accretive have our is opportunity shareholder in very the build and disciplined strategic that way robust Through acquisitions, to on meaningfully approach. our to M&A,

technical to over by over XXX adjusted we achieve cadence goal on of to grown Vision rate acquisitions nuclear area Given basis EBITDA strategic XXX, creating some equity appropriate deals close value database and potential distribution. segment. the per $XX annual million engineering our million goal expect XXXX XXXX The discussions, than combination possible more of our current two in mostly Currently, XXXX. cash, in meaningful can between targets in the to including the seller engaged and transmission M&A to deals. of run of $XX an that of and focused $XXX year. and has core end notes, engineering in in million we services that an of newly provide the revenue pipeline maintain we’re confident staffing/training remain would We remains earn-outs The the

our meet with We GSE the analysts add Group as time investor September, ago the many hope with proactive and at were call, meeting research XXXX share more of months Emmett, first to to will Minneapolis to accomplishment turn I’d This since Southwest and it beyond. be of on the in you. on New and a results. the list roadshow to a weeks our will that Sidoti prior non-deal November review a like a and so to the IDEAS With a a Conference chance we’ve commencement another a Examples will it community. who are initiated program. pleased for and to had financial sell-side Finally, activities roadshow. we XX, coverage of mentioned several excited covering great have Maxim XXXX, in to non-deal to We the new non-sponsored that, for with coming in I Dallas, full-day is In and include analysts. launched our the be third on Kyle at feel and Tomorrow, coverage of had over hope of see few recent York, dialogs outreach Conference we investment the team. major at presenting get story speak we quarter

Emmett Pepe

I’ll you, review with new Thank business. begin of a Chris.

of million Kyle QX in Our $X.X to Improvement Performance Performance the detailed nuclear significant in compared ‘XX. training bookings result increase contracts for that million of awarded totaled QX and orders work industry $XX.X process XXXX. and Improvement and in million the of million ‘XX QX, orders totaled QX Solutions Nuclear compared previously. Solutions in consulting $X.X segment in to The $XX.X ‘XX

receive to continues segment consulting funding significant and training additional few to industry customers. nuclear Our support a

GSE, to the the of time not we also company young short-term helping success, effort staffing of spending for proactively but positioning and Additionally, workforce, lot is our a needs. talent and aging clients’ at given our address the onboard nuclear long-term develop are which only us

the to Now our results XXXX in revenue for first to direct XX% $XX Total million of a Improvement training acquisition review primarily in QX, of quarter. which rose QX, from million a revenues $XX.X growth increased increased contributed of in revenues on $X.X financial Performance contributed million industry million in XX% XXXX. which to third QX, of in Consulting, Performance result and the in in segments to Solutions of $XX.X Absolute acquisition is million million – ‘XX. $X.X $X.X QX, QX, from revenue our QX, earlier The $X.X the for QX revenue North Nuclear in of QX, in million our is XXXX Improvement ‘XX. of consulting Solutions True The $X.X of a XXXX million in result from QX growth XXXX. XXXX. XXXX XX% This XXXX,

In revenue profit to expectations some segment’s QX calendar transition ‘XX in revenue or profit experienced meet ‘XX. and revenue North in $X.X QX as Chris Performance year. accounting. GAAP based anticipate $X.X of $X.X Based $X.X increased North XX% still from Gross XX% to for True from of accounting to a XX% million on earlier, profit QX to increased cash due a orders we or $X.X million full revenue XXXX. QX million our Consulting million, addition, True mentioned to million The in QX from Improvement in of delays XXXX XX% gross

went from diluted in and loss million adjusted in revenue share scale or exclude begins incurred level expenses or is leverage XXXX in QX to cost we recognize percentage of of The a of to few QX $XXX,XXX ‘XX. one-time profit which our of And QX QX to $X.X in recognition in our significant on in prior in started approximately approximately The revenue profit us gross XXXX. effects a release to expenses compared to in the of of year-over-year, able QX completion attributable additional of to line. on quarter, the in basic totaled quarter margin and most $X.XX The of and expenses. project. capture gross $X.X in XXXX savings or Despite XXXX segment’s loss During the to which Absolute in of near in we XX% million This basic projects the XXXX, budget significant straight contributed XXXX $XXX,XXX major increasing budget quarters. to operating per compared it’s to of Industry to project were by completed able million resulted diluted the we where to as to a if XXXX $XXX,XXX work relates even were to earnings as Non-GAAP one-off we reduction savings XXXX. XX.X% XX% compared reduced completion maintain same QX revenue Consulting increased share per $X.X $X.X bottom $XXX,XXX defined Consulting, the of approximately allowed we more revenue, increase profit or dramatic. of in EBITDA business. you increased compared full million QX as gross was XX% Training the QX The primarily XXXX. in demonstrate Net Nuclear QX which $X.XX XXXX XXXX. SG&A QX million our QX QX $XXX,XXX SG&A $X.X certain year-over-year a of

$X.X in XX, one caused temporary September larger totaled our projects XXXX in XX. Our as cash position decline of million. September of cash Delays a at

As next we cash to excluding we cash our as levels, collect our any quarter, operating return the on uses new to expect contract over of normal receivables position such acquisitions.

have acquisition Currently, I strategy. will million now transaction. previously, detailed and loan on Chris our execute term back deployment approximately for Kyle. working available to in could another on that delayed-draw be million cash we to our capital turn a of $XX available we conversation $XXX As are the under diligently

Kyle Loudermilk

for Operator, Thanks, questions. the floor Emmett. open please

Operator

Great. is go Please question Our Maxim from [Operator Thank from ahead. Instructions] Sullivan Group. you. first Tate

Tate Sullivan

million Hi, that bought you refresh North, opening, $X.X the backlog on think disclosed software appears you Can question in have in you first Hello, step Chris? thank you backlogs exclude project And True True just True North, I you. – it your North how everyone. does cobid backlog? an when so we much a meaningful mentioned the that that and up

Emmett Pepe

million the it contain awarded Emmett. at that backlog is flat. has The maintain that $X does or is backlog. This It Tate. in is project. so we million backlog the not yet. so brought relatively proposed about We been and Yes, $X.X Hi, not

Tate Sullivan

not It awarded. been has

the you you be an would it been say, Chris, over a a and then your go mean, deal little back year And it update Okay. expectations, has below from Absolute gave on I fair revenue please? that, ago can above EBITDA or sounds to like

Chris Sorrells

we that had EBITDA. We a rebid days, delivered presentation. some investor to standalone identified said – if did to. we – XX that this million, trailing about would is over or EBITDA months, approximately a in what said, to and contracts press XX XX out and then acquisition, trailing versus this When we $X its these distributed that investor since needed whether we deck, In the include $X.X Page frankly all we had X-K, is We the captured that million synergies, approximately million of $XX company approximately specify when that time million in Sure. XXX had I our on Page trending days standalone, and a looked a release hence be in the revenue and put those would had $X XX% you optimization, improvements delivered didn’t little what XX% process of down months necessarily thought XX through we adjusted improvement, and had get and of again, that XX bought XXX be increase. form so about then at and identified rethought this in days, in the at as time is a of recall, $X but a slides, we Absolute million and

little like it say, comes that optimistic bit had and it would close we’ve that some at made to we look but still outlined adjustments we and below to and the recent we where be, So in expected. it numbers

So we’re to-date. happy with the performance

Tate Sullivan

for on – Thank Okay. in that quarter update. currently how out your you see that then, how the long update losses the taxes came versus I you too. just NOLs you you Q accrual for And to, that? have didn’t and operating I much net saw Can

Emmett Pepe

don’t NOLs and fully are tranche around that’s expect till the think hovering the $XX yes, – utilize of first to I XXXX. we expires them. the end million

expect So we fully –

Tate Sullivan

accrue you what will for – tax in I of what see the expenses in But $XXX,XXX this accrue about quarter XQ? will just quarter for you

Emmett Pepe

Yes. Tate. question, your I’m I not follow sure

Tate Sullivan

you maybe – Well, Okay.

Emmett Pepe

Yes.

– I’m So sorry.

XX-Q, the about. have we what as in that’s $XXX,XXX identified As the provisions our asking tax you’re quarter, for

Tate Sullivan

Right.

recognize ‘XX? at But order, revenue budget like are on Okay. you’re simulator final delivery, – profits you have to the and that potential the on bottom. had which past I to some you well do sounds sounds still And margins like peak or I it’s you reduce to the early order dropped then it think –

Emmett Pepe

out, be early we work as lot Of simulators to and ‘XX. opportunity still have we a between right. now close X the still done There’s of

end, but that. at not that would very we’re the I So to we’re close getting say

Tate Sullivan

great. Okay,

go thank very much. back, Okay. Thank and you I’ll you.

Emmett Pepe

Tate. Thanks,

Operator

go here is Private [Operator Please question from Instructions] Smith, a ahead. next Mike Our Investor.

Mike Smith

companies but for adjusted my guys question you EBITDA when reporting GAAP you it or are will are become minus GAAP predictions a a including non-GAAP showing yourself any EPS, of you EPS. think on basis? Are making positive on is Guys, lot

Emmett Pepe

to you want do that? Chris, take

Chris Sorrells

Each We amortization in start allocated and don’t clean it the is number. number a do income piece monthly piece the XXX. of assets intangible is valuation to or amortization a over receivables, the on of about net intended the XXX comp tell very stock-based then plug is there. When fairly goodwill of I allocate – is Number $XX that look you acquisitions. at quarter, to we related two payables, And through has what we we Yes. And and away, then the third-party a have but at about goodwill. acquisition, quarterly allowance deals amortization that from in or down time really to adjusted one the adjustment, still is have have related from assets so X basis an The expense last go we have minus run-rate guidance, and let’s runs the we of the comp take it for deals. simplistic. million an going been value then outside mean, been it’s intangible we us, we has bulk and us a cash year provide expert intangibles. down and two valuation receivables about as stock-based about that trails that’s has $XXX,XXX the still that

total we really hedges which much And totally accrued that little paid it tax our that on cash of is was tax end then when given have non-cash crude which with and add-back is that and instruments a more, we true derivative typically foreign our quarterly $XX,XXX very both tiny how that took wells of in period or was for at look loss change through the XXX,XXX currency, number tax, the bit not XXk. through the and restructuring, this minimis even tax tax you cash was of up number. through a there XX%, de in So, a but

Mike Smith

number is your going that down to going be going you or down? Did stock-based is say compensation

Chris Sorrells

It has.

it’s has rolled is induce in, that there may the and some to it grants projecting the into future, team off. management over X know been years. not but team entirely the When new largely you came Let’s was is past that came why as as

many but were early and in amortize probably often, not have continue majority passing many, to with grants least the a one-time at is system amortized each quarter. have there So

holds factor maybe for XXX. predict that, given Now, new you with When to target. where into what employees as has enticement the could and it’s stock that’s acquisitions grants future too, beyond from have for retention least at it that employees year-over-year, quarter-over-quarter, raise to new comes XXX and but acquisition constant difficult to gone in, moving

Mike Smith

when you $X.X get goodwill hurdle So, expense? amortization think over you show and profit the of the will a after million of intangible

Chris Sorrells

thing is A gauge, different. it Well depends very difficult each the on deal to pace of transaction. the

mean you and So wanted it’s – onerous would into or the calculation and impact the want I you keep fairly get non-cash you it frankly a can the statement. sheet the it on decision scaling people this on like a and goodwill you pointed taking be rather balance of or to of growth amortize see out do and then a financial complaint yourself such at through goodwill

So through we run a it third-party.

Mike Smith

why Well, they P&L. kind the justify your to expense your of acquisitions, charging that’s a are goodwill is rate hurdle amortization

that’s you another years. mean, do it to be I your think put Let’s way, flow, cash coming free going the what in

So, that’s of the the number true really off? business profit, the rolling cash much is cash, how what

Chris Sorrells

CapEx, a and been don’t that you this XXX leasehold year year amount of but million look out minis, and have has We really CapEx, did have example an a improvement, cash. some capital we last CapEx months generated generally which year-to-date $X.X part that then CapEx we de X in Well, a we chunk good over generally that if issuing leasehold was have little statement last as cash into XX,XXX take and of de of year, we was P&L timing, was X working in have improvement the the and months piece minimis for of flow at software. issue

at we months what to capital CapEx X is. X.X X when you the look issue, cash and then shows on simulated your that make assumption before number number see So working of

good to sort to pretty depending sort LTM we take and compare flow the of given conversion the we CapEx that it’s it then what see at working adjusted on cash cycle then cash, cash and number before operations the less hovers from track a looking range XX% cash So and capital EBITDA, quarter. we in of is, of XX% generated modified LTM cash that

Kyle Loudermilk

questions. move Operator, could we Good next question? to on the

Operator

Sure.

Our from from question Please Sullivan Maxim ahead. is next here Group. go Tate

Tate Sullivan

A on couple Thanks. follow-up it. of

collection receivable you the that cycle three as accounts are or when you the all those come On for of bulk are cash in receiving delivered? is cash execute does – simulators, for orders it the

Emmett Pepe

This will cash roughly different milestones. and to is on signoff it’s execution, those get Emmett. it. We on I take speaking tied milestones but really

delays and acceptance could signed milestones there So be on and subsequently delay paid. that there to the and has get project is regularly get there is on over obviously off a build a then if various but factory do throughout testing that invoicing and collection cash, we the

could delay project, a collection any If some there dominos into in So, the cash be delay. is there cycle. delay in the then ultimately that

Tate Sullivan

go ahead was… maybe sorry then And – that Okay.

Emmett Pepe

and billing related collections. The

Tate Sullivan

on the you said that I do the in as completion you the do percent of to to one-time the as same quarter? exercise well North after same after the after then method, And and did have so with Okay. do True acquisition – a adjustments imagine approach deal just Absolute did you

Kyle Loudermilk

a where and your business, that GSE price as completion you core of Well, really all, our is go through of it. a you budget contracts estimated incurred there against parts has fixed the have of percentage couple Absolute like cost budget go to moving performance or that so it’s through of first someone True is not – material time impacted from really they as as based North are

a it where is Absolute just did not is So, business type that. of so different fall into

Tate Sullivan

mishear evaluated hear – XXX opportunities pipeline is number Okay. when did what or I the that was total discussed And you it Chris, that? your deal did that, I

Chris Sorrells

the We have all a verticals. math landscape of

fit, each sale, and naming We companies. so and this we on on for not is a that’s almost of ecosystem currently quarterly each universe – it’s are sort – just basis. a potential the weekly, totally had have with monthly as build a conversations number is all That’s we that

Tate Sullivan

Have all for you thank detail. night. a Okay, good the

Operator

the floor turn question-and-answer any back closing you. concludes I comments. Thank to the to like This management for session. would

Kyle Loudermilk

would are a Have execution would us. is day. and I focus and our In continued and a thank Kyle. we closing, to time pleased I This our reiterate improvement to progress your in say for joining everybody great like our how of like for again with interest you GSE. Thank on strategy.

Gse Systems (GVP) 14 Nov 182018 Q3 Earnings call transcript