COLUMBIA, Md. –
GSE Systems, Inc. (GSE or the Company) (Nasdaq: GVP), a leading
provider of professional and technical engineering, staffing services
and simulation software to clients in the power and process industries,
today announced financial results for the third quarter (Q3) ended
September 30, 2018.

Q3 2018 vs. Q3 2017 OVERVIEW

• Revenue increased 42% to $21.8 million from $15.4 million.
• Gross profit rose 28% to $5.4 million from $4.2 million.
• Net loss decreased 14% to $(0.5) million, or $(0.03) per diluted
  share, compared to $(0.6) million, or $(0.03) per diluted share.
• Adjusted net income¹ grew 26% to $0.8 million, or $0.04 per
  diluted share, from $0.6 million, or $0.03 per diluted share.
• Adjusted EBITDA¹ rose 68% to $1.5 million from $0.9 million.
• New orders increased 203% to $27.9 million from $9.2 million.

At September 30, 2018

• Cash, cash equivalents and restricted cash of $9.8 million.
• Total debt of $9.0 million.
• Working capital of $11.9 million and current ratio of 1.6x.
• Backlog of $74.0 million.

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”.

Kyle J. Loudermilk, GSE’s President and Chief Executive Officer, said,
“On a year-over-year basis, GSE’s third quarter 2018 revenue increased
42% to $21.8 million, adjusted EBITDA grew 68% to $1.5 million and
adjusted net income rose 26% to $0.8 million. We are excited to see
continuing momentum in operating leverage via Adjusted EBITDA and expect
this to accelerate as we scale. In addition, new orders were the highest
since the first quarter of 2016. Our acquisitions of Absolute Consulting
and True North Consulting helped drive this quarter’s strong
performance, demonstrating the significant potential of our strategy to
scale GSE and create value through rolling up a fractured vendor
ecosystem in the nuclear power industry. We continue to evaluate and
pursue a robust pipeline of additional potential value-creating
strategic acquisitions.”

Q3 2018 RESULTS

Q3 2018 revenue increased $6.4 million to $21.8 million, from $15.4
million in Q3 2017, primarily driven by the acquisition of Absolute
Consulting, LLC (“Absolute”) in September 2017, and by the acquisition
of True North Consulting, LLC (“True North”) on May 11, 2018.

		Three months ended						Nine months ended
		September 30,						September 30,
Revenue		2018			2017			2018			2017
		(unaudited)			(unaudited)			(unaudited)			(unaudited)
Performance		$	9,849		$	8,737		$	30,614		$	30,093
NITC			11,952			6,672			38,780			18,783
Total Revenue		$	21,801		$	15,409		$	69,394		$	48,876

Performance Improvement Solutions (“Performance”) revenue totaled $9.8
million and $8.7 million for Q3 2018 and Q3 2017, respectively. The
Company recorded total Performance orders of $17.2 million and $2.9
million for Q3 2018 and Q3 2017, respectively. The increase in revenue
was primarily due to the acquisition of True North, which contributed
$2.4 million of revenue to the segment for Q3 2018. This increase was
partially offset by a decline of $0.7 million due to timing differences,
and a decline of $0.6 million from foreign subsidiaries as a result of
the winding down of the international subsidiaries.

Nuclear Industry Training and Consulting (“NITC”) revenue increased 79%
to $12.0 million for Q3 2018 from $6.7 million for Q3 2017. NITC new
orders totaled $10.7 million and $6.3 million for Q3 2018 and Q3 2017,
respectively. The increase in revenue was largely due to the acquisition
of Absolute which contributed $6.2 million of revenue to Q3 2018.

Q3 2018 gross profit increased to $5.4 million, or 25% of revenue, from
$4.2 million, or 27% of revenue, in Q3 2017.

(in thousands)		Three months ended September 30,												Nine months ended September 30,
Gross profit		2018			%			2017			%			2018			%			2017			%
		(unaudited)						(unaudited)						(unaudited)						(unaudited)
Performance		$	3,638		36.9	%		$	2,904		33.2	%		$	11,318		37.0	%		$	10,337		34.4	%
NITC			1,783		14.9	%			1,320		19.8	%			5,341		13.8	%			3,026		16.1	%
Gross Profit		$	5,421		24.9	%		$	4,224		27.4	%		$	16,659		24.0	%		$	13,363		27.3	%

Performance gross profit for Q3 2018 was $3.6 million, or 36.9% gross
margin, compared to $2.9 million, or 33.2% gross margin, in Q3 2017. The
year-over-year increase in gross margin for Performance was primarily
driven by cost savings realized in 2018 for a few major projects.

NITC gross profit for Q3 2018 was $1.8 million, or 14.9% gross margin,
compared to approximately $1.3 million, or 19.8% gross margin, in Q3
2017. The gross profit percentage in Q3 2018 was lower, as compared to
other periods, principally because of normal changes in the mix of
projects with different margins.

Selling, general and administrative (“SG&A”) expenses in Q3 2018 totaled
$4.4 million, 20.0% of revenue, compared to $4.4 million, or 28.4% of
revenue, in Q3 2017. Despite our revenue increasing by 42%
year-over-year, we were able to maintain the same level of SG&A
expenses. This begins to demonstrate the effects of operating leverage
as we integrate acquisitions.

Research and Development (“R&D”) expenses in Q3 2018 totaled $247,000
compared to $353,000 in Q3 2017. The decrease is primarily driven by
lower labor costs due to a reallocation of resources to direct projects
and an increase in capitalization of software development cost.

As previously announced, the Company expected restructuring charges to
total $2.1 million, excluding any tax impacts and cumulative translation
adjustments. The Company recorded restructuring charges of $70,000 in Q3
2018, primarily consisting of lease termination costs, employee
severance costs and other charges. As of September 30, 2018, the Company
had recorded accumulated restructuring charges of $1.9 million, and
expects to record the remaining restructuring charges of approximately
$159,000 by the end of 2018.

Depreciation expenses totaled $132,000 in Q3 2018, compared to $79,000
in Q3 2017. The year over year increase was primarily due to the
depreciation of fixed assets at Absolute and additional leasehold
improvements at the new corporate location in Columbia, Maryland in
March 2018.

Amortization of definite-lived intangible assets increased to $0.6
million in Q3 2018, compared to $50,000 in Q3 2017. The increase in
amortization of definite-lived intangible assets in 2018 was primarily
due to the acquisitions of Absolute and True North. In Q3 2018, Absolute
and True North’s amortization expenses totaled $0.2 million and $0.4
million, respectively.

Operating loss was approximately $(26,000) and $(632,000) in Q3 2018 and
Q3 2017, respectively. The change was primarily driven by the items
discussed above.

Net loss for Q3 2018 totaled approximately $(0.5) million, or $(0.03)
per basic and diluted share, compared to $(0.6) million, or $(0.03) per
basic and diluted share, in Q3 2017. The change was primarily driven by
the changes in operating income, (loss) gain on derivative instruments,
net, and provision for income taxes.

Adjusted net income¹, which excludes from net income the
impact of gain/loss from the change in fair value of contingent
consideration, restructuring charges, stock-based compensation expense,
impact of the change in fair value of derivative instruments,
acquisition related expenses, amortization of intangible assets related
to acquisitions, and bankruptcy related expenses, was approximately $0.8
million, or $0.04 per diluted share, compared to approximately $0.6
million, or $0.03 per diluted share, in Q3 2017.

Earnings before interest, taxes, depreciation and amortization
(“EBITDA”) for Q3 2018 was $0.8 million compared to $(0.3) million in Q3
2017.

Adjusted EBITDA¹, which excludes from EBITDA the impact of
gain/loss from the change in fair value of contingent consideration,
restructuring charges, stock-based compensation expense, impact of the
change in fair value of derivative instruments, acquisition related
expenses, and bankruptcy related expenses, totaled approximately $1.5
million and $0.9 million for Q3 2018 and Q3 2017, respectively.

BACKLOG AND CASH POSITION

Backlog at September 30, 2018 was $74.0 million, compared to $71.4
million at December 31, 2017. Backlog at September 30, 2018, included
$50.8 million of Performance backlog, $5.6 million of which was
attributable to True North, and $23.2 million of NITC backlog.

GSE’s cash position at September 30, 2018, was $9.8 million, including
cash, cash equivalent and restricted cash, as compared to $20.1 million,
including $1.0 million of restricted cash, at December 31, 2017. The
change in cash position was primarily driven by the timing difference of
cash collection and payments in different periods.

CONFERENCE CALL

Management will host a conference call today at 4:30 pm Eastern Time to
discuss Q3 2018 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/38965

For those who cannot listen to the live broadcast, an online webcast
replay will be available at www.gses.com
or through February 14, 2019 at the following link: http://www.investorcalendar.com/event/38965

ABOUT GSE SYSTEMS, INC.

GSE Systems, Inc. is a leading provider of professional and technical
engineering, staffing services, and simulation software to clients in
the power and process industries. GSE’s products and services are
tailored to help customers achieve performance excellence in design,
training, compliance, and operations. 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 Columbia, Maryland;
Navarre, Florida; Montrose, Colorado; 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,
		2018					2017					2018					2017
Revenue		$	21,801				$	15,409				$	69,394				$	48,876
Cost of revenue			16,380					11,185					52,735					35,513
Gross profit			5,421					4,224					16,659					13,363
Operating expenses:
Selling, general and administrative			4,366					4,374					13,686					11,740
Research and development			247					353					765					1,103
Restructuring charges			70					–					1,177					45
Depreciation			132					79					411					254
Amortization of definite-lived intangible assets			632					50					1,094					148
Total operating expenses			5,447					4,856					17,133					13,290
Operating income (loss)			(26		)			(632		)			(474		)			73
Interest (expense) income, net			(114		)			15					(153		)			60
(Loss) gain on derivative instruments, net			(59		)			71					(306		)			226
Other (expense) income, net			(5		)			33					24					(4	)
(Loss) income before income taxes			(204		)			(513		)			(909		)			355
Provision for income taxes			314					92					124					399
Net loss		$	(518		)		$	(605		)		$	(1,033		)		$	(44	)
Basic loss per common share		$	(0.03		)		$	(0.03		)		$	(0.05		)		$	–
Diluted loss per common share		$	(0.03		)		$	(0.03		)		$	(0.05		)		$	–
Weighted average shares outstanding – Basic		19,786,888					19,280,770					19,620,207					19,204,778
Weighted average shares outstanding – Diluted		19,786,888					19,280,770					19,620,207					19,204,778

GSE SYSTEMS, INC AND SUBSIDIARIES
Selected Balance Sheet Data (in thousands)
		September 30, 2018			December 31, 2017
		(unaudited)			(audited)
Cash and cash equivalents		$	9,831		$	19,111
Restricted cash – current			9			960
Current assets			30,702			36,863
Total assets			57,551			56,182
Current liabilities		$	18,803		$	25,252
Long-term liabilities			8,634			1,258
Stockholders’ equity			30,114			29,672

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 each measure 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. Our management uses EBITDA
and Adjusted EBITDA and other non-GAAP measures to evaluate the
performance of our business and make certain operating decisions (e.g.,
budgeting, planning, employee compensation and resource allocation).
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 is as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2018				2017				2018				2017
Net loss		$	(518	)		$	(605	)		$	(1,033	)		$	(44	)
Interest expense (income), net			114				(15	)			153				(60	)
Provision for income taxes			314				92				124				399
Depreciation and amortization			914				247				1,858				754
EBITDA			824				(281	)			1,102				1,049
Change in fair value of contingent consideration			–				139				–				436
Restructuring charges			70				–				1,177				45
Stock-based compensation expense			507				627				1,535				1,873
Impact of the change in fair value of derivative instruments			59				(71	)			306				(226	)
Acquisition-related expense			–				454				491				473
Bad debt expense due to customer bankruptcy			–				–				65				122
Adjusted EBITDA		$	1,460			$	868			$	4,676			$	3,772

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 GAAP. Management believes
adjusted net income and adjusted EPS, in addition to other GAAP
measures, provide meaningful supplemental information regarding our
operational performance. Our management uses Adjusted Net Income and
other non-GAAP measures to evaluate the performance of our business and
make certain operating decisions (e.g., budgeting, planning, employee
compensation and resource allocation). This information facilitates
management’s internal comparisons to our historical operating results as
well as to the operating results of our competitors. Since management
finds this measure to be useful, we believe that our investors can
benefit by evaluating both non-GAAP and GAAP results. 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,
in accordance with SEC Regulation G is as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2018				2017				2018				2017
Net loss		$	(518	)		$	(605	)		$	(1,033	)		$	(44	)
Change in fair value of contingent consideration			–				139				–				436
Restructuring charges			70				–				1,177				45
Stock-based compensation expense			507				627				1,535				1,873
Impact of the change in fair value of derivative instruments			59				(71	)			306				(226	)
Acquisition-related expense			–				454				491				473
Amortization of intangible assets related to acquisitions			632				50				1,094				148
Bad debt expense due to customer bankruptcy			–				–				65				122
Adjusted net income		$	750			$	594			$	3,635			$	2,827
Diluted loss per common share		$	(0.03	)		$	(0.03	)		$	(0.05	)		$	–
Adjusted earnings per common share – Diluted		$	0.04			$	0.03			$	0.18			$	0.14
Weighted average shares outstanding – Diluted(1)		20,166,912				19,702,742				19,932,921				19,601,661

⁽¹⁾ During the nine months ended September 30, 2018, the
Company reported a GAAP net loss and positive adjusted net income.
Accordingly, there were 312,714 dilutive shares from options and RSUs
included in the adjusted earnings per common share calculation for the
nine months ended September 30, 2018, that were considered anti-dilutive
in determining the GAAP diluted loss per common share.

View source version on businesswire.com: https://www.businesswire.com/news/home/20181114005883/en/

Company
Chris Sorrells
Chief Operating Officer
GSE
Systems, Inc.
410-970-7802
or
The Equity Group Inc.
Kalle
Ahl, CFA
212-836-9614
kahl@equityny.com