SYKESVILLE, Md. –
GSE Systems, Inc. (“GSE” or “the Company”) (NYSE American: GVP),
a 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 fourth quarter (“Q4”) and full year
ended December 31, 2017.
FULL YEAR 2017 OVERVIEW
-
Acquired Absolute Consulting on September 20 and streamlined
international operations in Q4. - Revenue expanded 33.5% to $70.9 million from $53.1 million in 2016.
-
Gross profit increased 14.1% to $18.5 million from $16.3 million in
2016. -
Net income increased to $5.4 million, or $0.27 per diluted share,
compared to $1.4 million, or $0.08 per diluted share, in 2016. -
Adjusted net income1 totaled $2.8 million, or $0.14 per
diluted share, compared to adjusted net income of $3.6 million, or
$0.20 per diluted share, in 2016. -
Adjusted EBITDA1 rose 15.4% to $5.8 million from $5.0
million in 2016. -
Cash flow from operations totaled $7.7 million, compared to $10.2
million in 2016. - New orders totaled $55.0 million, compared to $79.5 million in 2016.
Q4 2017 OVERVIEW
-
Revenue increased 65.7% to $22.0 million from $13.3 million in Q4
2016, first full quarter post Absolute Consulting acquisition. - Gross profit rose 8.7% to $5.2 million from $4.8 million in Q4 2016.
-
Net income equaled $5.4 million, or $0.27 per diluted share, compared
to $1.0 million, or $0.05 per diluted share, in Q4 2016. -
Adjusted net loss totaled $(0.1) million, or $(0.01) per diluted
share, compared to adjusted net income of $1.9 million, or $0.10 per
diluted share, in Q4 2016. -
Adjusted EBITDA totaled $1.8 million, compared to $2.2 million in Q4
2016. - New orders rose to $17.9 million from $16.7 million in Q4 2016.
At December 31, 2017
-
Cash and equivalents of $20.1 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 $11.6 million and current ratio of 1.5x.
- No outstanding long-term debt.
-
Backlog totaled $71.4 million, compared to year-end 2016 backlog of
$73.2 million.
1 Refer to the non-GAAP reconciliation tables at the end of
this press release for a definition of “adjusted EBTIDA” and “adjusted
net income”.
Kyle J. Loudermilk, GSE’s President and Chief Executive Officer, said,
“GSE closed a terrific 2017 with a solid fourth quarter, successfully
delivering on our commitments to our customers and our shareholders. We
efficiently executed on our backlog as well as completed our first full
quarter after the Absolute Consulting acquisition, resulting in a year
over year revenue increase of 66% for Q4. We finished the year with
approximately $20 million in cash, which is a reflection of GSE’s
operations and strong cash flow generation, especially after our
all-cash acquisition of Absolute Consulting for approximately $9
million. While growing, we kept a keen eye on improving our efficiency,
streamlining our operations to ensure we are a lean and agile company.
Our strong balance sheet keeps us well positioned to further execute on
our strategy of leveraging GSE as an exciting platform for a roll-up of
a fractured vendor ecosystem serving the nuclear power industry. We have
identified and continue to work towards capitalizing on a number of
exciting organic and inorganic growth opportunities. 2017 was a year of
accomplishment for GSE, and in 2018, we aim to build on our success to
grow revenue and further enhance shareholder value.”
2017 FULL YEAR RECAP
Revenue expanded to $70.9 million from $53.1 million in 2016, the
highest level in ten years.
Gross profit increased 14.1% to $18.5 million, or 26.2% of revenue, from
$16.3 million, or 30.6% of revenue in 2016.
Operating income totaled $0.2 million in 2017, compared to $1.6 million
in 2016.
Net income increased to $5.4 million, or $0.27 per diluted share,
compared to $1.4 million, or $0.08 per diluted share, in 2016.
Adjusted net income1, 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 expense, Westinghouse
bankruptcy related expense, one-time tax reform impact and release of
valuation allowance decreased to $2.8 million, or $0.14 per diluted
share, from $3.6 million, or $0.20 per diluted share in 2016.
Earnings before interest, taxes, depreciation and amortization (EBITDA)1
totaled $1.5 million in 2017, compared to $2.8 million in 2016.
Adjusted EBITDA1, 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 expense, and Westinghouse bankruptcy
related expense rose 15.4% to $5.8 million in 2017 from $5.0 million in
2016.
Q4 2017 RESULTS
Q4 2017 revenue increased $8.7 million from $13.3 million in Q4 2016 to
$22.0 million in Q4 2017. The year over year increase was driven by an
increase of $7.0 million in the Company’s Nuclear Industry Training and
Consulting segment and an increase of $1.7 million from the Company’s
Performance Improvement Solutions segment.
The increase in the Nuclear Industry Training and Consulting segment’s
revenue was largely driven by the acquisition of Absolute Consulting,
which contributed $7.6 million of additional revenue in Q4 2017. The
increase was partially offset by a decrease of $0.6 million in
Hyperspring’s revenue in Q4 2017 due to lower staffing demand from
customers.
The increase in the Performance Improvement Solutions segment’s revenue
was largely driven by a $2.2 million increase from a major customer per
the large contract executed in the first quarter of 2016, which was
partially offset by lower revenues from the Company’s foreign
subsidiaries of $0.5 million primarily due to the winding down of the
business in the UK and Sweden offices.
| (in thousands) |
Three Months ended |
Twelve Months ended |
||||||||||||
| Revenue: | 2017 | 2016 | 2017 | 2016 | ||||||||||
| (unaudited) | (unaudited) | (audited) | (audited) | |||||||||||
|
Performance Improvement Solutions |
$ |
9,806 |
$ | 8,092 | $ | 39,899 | $ | 35,474 | ||||||
| Nuclear Industry Training and Consulting | $ | 12,198 | $ | 5,189 | $ | 30,981 | $ | 17,627 | ||||||
| Total Revenue | $ | 22,004 | $ | 13,281 | $ | 70,880 | $ | 53,101 | ||||||
Performance Improvement Solutions new orders totaled $4.9 million in Q4
2017 compared to $13.0 million in Q4 2016. Nuclear Industry Training and
Consulting new orders totaled $13.0 million in Q4 2017 compared to $3.7
million in Q4 2016. Absolute Consulting contributed $8.0 million of new
orders in Q4 2017. Excluding Absolute Consulting, new orders in Q4 2017
increased $1.3 million primarily due to increased orders from major
customers.
Q4 2017 gross profit was $5.2 million, or 23.5% of revenue, compared to
$4.8 million, or 35.9% of revenue, in Q4 2016.
| (in thousands) |
Three Months ended |
Twelve Months ended |
|||||||||||||||||||||
| Gross Profit: | 2017 | % | 2016 | % | 2017 | % | 2016 | % | |||||||||||||||
| (unaudited) | (unaudited) | (audited) | (audited) | ||||||||||||||||||||
| Performance Improvement Solutions |
$ |
3,375 |
34.4 | % | 3,787 | 46.8 | % | 13,712 | 34.4 | % | 13,658 | 38.5 | % | ||||||||||
| Nuclear Industry Training and Consulting | $ | 1,806 | 14.8 | % | 980 | 18.9 | % | 4,832 | 15.6 | % | 2,600 | 14.8 | % | ||||||||||
| Consolidated Gross Profit | 5,181 | 23.5 | % | 4,767 | 35.9 | % | 18,544 | 26.2 | % | 16,258 | 30.6 | % | |||||||||||
Performance Improvement Solutions gross profit for Q4 2017 was $3.4
million, or 34.4% gross margin, compared to $3.8 million, or 46.8% gross
margin, in Q4 2016. The year over year decrease in gross profit
percentage for Performance Improvement Solutions during Q4 2017 was
primarily driven by three major nuclear simulation projects with lower
margin.
Nuclear Industry Training and Consulting gross profit for Q4 2017 was
$1.8 million, or 14.8% gross margin, compared to approximately $1.0
million, or 18.9% gross margin, in Q4 2016. Absolute Consulting
contributed $1.1 million to the gross profit for Nuclear Industry
Training and Consulting in Q4 2017, with gross margin of 14.0%, which
resulted in a lower gross margin for the segment in Q4 2017.
Selling, general and administrative expenses (SG&A) in Q4 2017 totaled
$3.7 million, or 16.9% of revenue, compared to $3.7 million, or 27.5% of
revenue, in Q4 2016. Absolute Consulting contributed $0.6 million to Q4
SG&A expenses, which was offset by $0.4 million decrease in corporate
charge due to lower recruiting expenses, stock-based compensation and
bonus true-up adjustment in Q4, as well as a $0.2 million decrease in
contingent consideration expense which mainly reflected the fair value
adjustments related to the Company’s November 2014 Hyperspring
acquisition.
Restructuring Charges
On December 27, 2017, the board of GSE Systems, Inc. approved an
international restructuring plan to streamline and optimize the
Company’s global operations. Beginning in December 2017, GSE
consolidated its engineering services and R&D activities to Maryland and
ceased an unprofitable non-core business in the U.K. As a result, the
Company is in the process of closing its offices in Nyköping, Sweden;
Chennai, India; and Stockton-on-Tees, UK. These actions are designed to
improve Company productivity by eliminating duplicate employee functions
and increasing GSE’s focus on its core business, improving efficiency
and maintaining the full range of engineering capabilities while
reducing costs and organizational complexity. Under the restructuring
plan, the Company expects to record a total restructuring charge of $1.7
million, excluding any tax impacts and cumulative translation
adjustments. During Q4 2017, the Company recorded a restructuring charge
of $0.7 million, consisting of severance expenses of $0.5 million, asset
write-off of $0.2 million and other costs of $46,000. The Company
expects to record the remaining restructuring charges in 2018, primarily
reflect the office closure costs and the amounts to be transferred from
cumulative translation adjustments and included in determining net
income for the period. In addition, the projected cash cost savings from
this activity are not expected to be started until the 3Q 2018.
Operating income was approximately $0.2 million in Q4 2017, compared to
$0.7 million in Q4 2016. The decrease was primarily driven by
restructuring charges to streamline international operations.
Provision for income taxes
The Company recorded a tax provision of $(5.4) million in Q4 2017. As of
each reporting date, the Company’s management assesses the realizability
of deferred tax assets. Based on the assessment the Company’s management
performed as of December 31, 2017, the Company concluded that critical
pieces of positive evidence supporting the realization of deferred tax
assets exist including the strength of three year cumulative positive
earnings, reversal of existing deferred temporary differences and
sufficient future taxable income for the U.S. entities. As a result, the
Company released $9.4 million of valuation allowance against the
deferred tax assets related to the U.S. entities, which was partially
offset by a decrease of $2.5 million for deferred taxes, primarily due
to the remeasurement of deferred tax assets using a tax rate decreased
from 34% to 21% and a charge of $1.4 million for provision for uncertain
tax positions.
Net income for Q4 2017 totaled $5.4 million, or $0.28 and $0.27 per
basic and diluted share, respectively, compared to $1.0 million, or
$0.05 per basic and diluted share, in Q4 2016.
Adjusted net (loss) income1, 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 expense,
Westinghouse bankruptcy related expense, one-time tax reform impact and
release of valuation allowance, totaled $(0.1) million, or $(0.01) per
diluted share, compared to $1.9 million, or $0.10 per diluted share, in
Q4 2016.
EBITDA1 for Q4 2017 was approximately $0.4 million compared
to $1.3 million in Q4 2016.
Adjusted EBITDA1, which excludes the impact of gain/loss from
the change in fair value of contingent consideration, restructuring
charges, stock-based compensation expense, and consulting support for
finance restructuring, acquisition-related expense, and Westinghouse
bankruptcy related expense totaled $1.8 million in Q4 2017, compared to
$2.2 million in Q4 2016.
BACKLOG AND CASH POSITION
Backlog at December 31, 2017, was $71.4 million, including $46.3 million
of Performance Improvement Solutions backlog and $25.1 million of
Nuclear Industry Training and Consulting backlog, $13.1 million of which
was attributable to Absolute Consulting. At December 31, 2016, the
Company’s backlog was $73.2 million; $68.8 million for the Performance
Improvement Solutions and $4.4 million for Nuclear Industry Training and
Consulting. The decrease in Performance Improvement Solutions 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
Consulting, Nuclear Industry Training and Consulting’s backlog increased
$7.6 million during 2017 primarily due to increased orders from
Hyperspring’s major customers.
GSE’s cash position at December 31, 2017, was $20.1 million, including
$1.0 million of restricted cash, as compared to $22.9 million, including
$1.1 million of restricted cash, at December 31, 2016.
CONFERENCE CALL
Management will host a conference call today at 4:30 pm Eastern Time to
discuss Q4 and full year 2017 results as well as 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/25597
For those who cannot listen to the live broadcast, an online webcast
replay will be available at www.gses.com
or through June 6, 2018 at the following link: http://www.investorcalendar.com/event/25597.
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 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 | Twelve Months ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||
| (unaudited) | (unaudited) | (audited) | (audited) | ||||||||||||||
| Revenue |
$ |
22,004 |
$ | 13,281 | $ | 70,880 | $ | 53,101 | |||||||||
| Cost of revenue | 16,823 | 8,514 | 52,336 | 36,843 | |||||||||||||
| Gross profit | 5,181 | 4,767 | 18,544 | 16,258 | |||||||||||||
| Selling, general and administrative | 3,729 | 3,654 | 15,469 | 12,260 | |||||||||||||
| Research and development | 288 | 251 | 1,391 | 1,261 | |||||||||||||
| Restructuring charges | 733 | 3 | 778 | 490 | |||||||||||||
| Depreciation | 88 | 89 | 342 | 383 | |||||||||||||
| Amortization of definite-lived intangible assets | 187 | 70 | 335 | 289 | |||||||||||||
| Operating expenses | 5,025 | 4,067 | 18,315 | 14,683 | |||||||||||||
| Operating income | 156 | 700 | 229 | 1,575 | |||||||||||||
| Interest income, net | 20 | 33 | 80 | 85 | |||||||||||||
| (Loss) gain on derivative instruments, net | (127 | ) | 328 | 99 | (18 | ) | |||||||||||
| Other income (expense), net | – | 18 | (4 | ) | 130 | ||||||||||||
| Income before income taxes | 49 | 1,079 | 404 | 1,772 | |||||||||||||
| Provision for income taxes | (5,379 | ) | 75 | (4,980 | ) | 350 | |||||||||||
| Net income | $ | 5,428 | $ | 1,004 | $ | 5,384 | $ | 1,422 | |||||||||
| Basic earnings per common share | $ | 0.28 | $ | 0.05 | $ | 0.28 | $ | 0.08 | |||||||||
| Diluted earnings per common share | $ | 0.27 | $ | 0.05 | $ | 0.27 | $ | 0.08 | |||||||||
| Weighted average shares outstanding – Basic | 19,395,592 | 18,722,743 | 19,259,966 | 18,218,681 | |||||||||||||
| Weighted average shares outstanding – Diluted | 19,790,696 | 19,073,513 | 19,605,427 | 18,512,266 | |||||||||||||
| GSE SYSTEMS, INC AND SUBSIDIARIES | ||||||||
|
Selected Balance Sheet Data (in thousands) |
||||||||
| (audited) | (audited) | |||||||
| December 31, 2017 | December 31, 2016 | |||||||
| Cash and cash equivalents |
$ |
19,111 |
$ | 21,747 | ||||
| Restricted cash – current | 960 | 1,140 | ||||||
| Current assets | 36,863 | 43,802 | ||||||
| Total assets | $ | 56,855 | $ | 53,656 | ||||
| Current liabilities | $ | 25,252 | $ | 31,386 | ||||
| Long-term liabilities | 1,931 | 1,149 | ||||||
| Stockholders’ equity | $ | 29,672 | $ | 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. 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:
| Three Months ended | Twelve Months ended | |||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
|
Net income |
$ | 5,428 | $ | 1,004 | $ | 5,384 | $ | 1,422 | ||||||||||||||
| Interest income, net | (20 | ) | (33 | ) | (80 | ) | (85 | ) | ||||||||||||||
| Provision for income taxes | (5,379 | ) | 75 | (4,980 | ) | 350 | ||||||||||||||||
| Depreciation and amortization | 392 | 271 | 1,146 | 1,080 | ||||||||||||||||||
| EBITDA | 421 | 1,317 | 1,470 | 2,767 | ||||||||||||||||||
| Gain (loss) from the change in fair value of contingent consideration | 10 | 163 | 446 | (207 | ) | |||||||||||||||||
| Restructuring charges | 733 | 3 | 778 | 490 | ||||||||||||||||||
| Stock-based compensation expense | 599 | 650 | 2,472 | 1,550 | ||||||||||||||||||
| Consulting support for finance restructuring | – | 84 | – | 394 | ||||||||||||||||||
| Acquisition-related expense | – | – | 473 | – | ||||||||||||||||||
| Westinghouse bankruptcy related expense | – | – | 122 | – | ||||||||||||||||||
| Adjusted EBITDA | $ | 1,763 | $ | 2,217 | $ | 5,761 | $ | 4,994 | ||||||||||||||
Adjusted Net Income and Adjusted EPS Reconciliation (in
thousands, except per share amounts)
Adjusted Net Income and adjusted earnings 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 | Twelve Months ended | ||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| (unaudited) | (unaudited) | audited | audited | ||||||||||||||||||
|
Net income |
$ | 5,428 | $ | 1,004 | $ | 5,384 | $ | 1,422 | |||||||||||||
| Gain/loss from the change in fair value of contingent consideration | 10 | 163 | 446 | (207 | ) | ||||||||||||||||
| Restructuring charges | 733 | 3 | 778 | 490 | |||||||||||||||||
| Stock-based compensation expense | 599 | 650 | 2,472 | 1,550 | |||||||||||||||||
| Consulting support for finance restructuring | – | 84 | – | 394 | |||||||||||||||||
| Acquisition-related expense | – | – | 473 | – | |||||||||||||||||
| Westinghouse bankruptcy related expense | – | – | 122 | – | |||||||||||||||||
| Tax reform impact | 2,497 | – | 2,497 | – | |||||||||||||||||
| Release of valuation allowance | (9,382 | ) | – | (9,382 | ) | – | |||||||||||||||
| Adjusted net (loss) income | $ | (115 | ) | 1,904 | $ | 2,790 | $ | 3,649 | |||||||||||||
| Diluted earnings per common share | $ | (0.01 | ) | $ | 0.10 | $ | 0.14 | $ | 0.20 | ||||||||||||
| Adjusted (loss) earnings per common share – Diluted | $ | (0.01 | ) | $ | 0.10 | $ | 0.14 | $ | 0.20 | ||||||||||||
| Weighted average shares outstanding – Diluted(a) | 19,395,592 | 19,073,513 | 19,605,427 | 18,512,266 | |||||||||||||||||
| (a) |
During the three months ended December 31, 2017, the Company reported a non-GAAP net loss and positive net income. Accordingly, there were 395,104 dilutive shares from options and RSUs included in the diluted earnings per common share calculation for the three months ended December 31, 2017, that were considered anti-dilutive in determining the non-GAAP diluted loss per common share. |
View source version on businesswire.com: http://www.businesswire.com/news/home/20180315006398/en/
Company
GSE Systems, Inc.
Chris Sorrells, (410) 970-7802
Chief
Operating Officer
or
The Equity Group Inc.
Kalle
Ahl, CFA, (212) 836-9614
kahl@equityny.com