GSE Systems Reports Second Quarter 2022 Financial Results

Conference Call Scheduled for today, August 15, 2022 at 4:30pm ET

COLUMBIA, Md., Aug. 15, 2022 /PRNewswire/ -- GSE Systems, Inc. ("GSE Solutions", "GSE", or "the Company") (Nasdaq: GVP), a leader in advanced engineering and workforce solutions that support the future of clean energy production and overall decarbonization initiatives of the power industry, today announced financial results for the second quarter ("Q2") ended June 30, 2022.

Q2 2022 and Recent Highlights

• Strong revenue growth from Performance Engineering, with a 24% increase over Q1 of 2022 and 16% improvement from Q2 of 2021.
• Software and support sales increased in Q2 of 2022 by 217% to $1.2 million when compared to $0.4 million in Q1 of 2022 and rose 54% compared to Q2 of 2021.
• Backlog at June 30, 2022, was $34.0 million, including $27.5 million of Performance Improvement Solutions backlog, and $6.5 million of Workforce Solutions backlog.
• During Q2 2022, the Company received Employee Retention Credit refunds of $1.6 million, with remaining refunds due of $1.4 million as of June 30, 2022.
• Ended Q2 with cash, cash equivalents and restricted cash of $6.9 million, including restricted cash of $1.6 million.

Management Commentary

"I am pleased with the progress made during the second quarter, whereby we continue to see signs of improvement in the industry. Additionally, we were able to improve our capital structure and balance sheet in a very timely manner. This has enabled us to make key investments during the quarter to prepare GSE for future organic growth opportunities, especially as our end markets continue a path towards normalization following the pandemic induced slowdown over the past two years, including much of 2021," commented Kyle J. Loudermilk, GSE's President and Chief Executive Officer. "Our organic license revenue growth is a direct result of targeted investments by the company to grow this line of business. While the second quarter project order flow was a bit of a pause from the strong second half of 2021, our project execution and revenue remain solid, our backlog has remained strong, and we have a robust pipeline of new business opportunities to pursue. We remain optimistic about the direction of the company for the remainder of the fiscal year. In the near-term, we believe that the upgrades of power plants that were delayed as a result of the pandemic has created a backlog of projects that will require GSE's solutions. Longer term, the macro trends towards grid stability, energy security and decarbonization are in our favor, providing a solid foundation to be optimistic about the future."

Emmett Pepe, CFO of GSE Systems, added, "The company's capital structure remained strong at the end of Q2 as we showed sequential improvement in revenue, margins, and Adjusted EBITDA. The company ended Q2 with cash, cash equivalents and restricted cash of $6.9 million, including restricted cash of $1.6 million. We have used the improved balance sheet to make some additional hires and investments into our divisions to place the company in a solid position for growth by identifying and winning additional opportunities. We have received cumulative Employee Retention Credit refunds through the CARES Act of approximately $3.6 million through June 30, 2022. The company is expecting to receive the remaining refunds of approximately $1.4 million in the next three to six months. The receipt of these credits enhances the Company's cash position and allows the company to make necessary investments for the future."

Q2 2022 FINANCIAL RESULTS

Revenue during Q2 2022 was $12.7 million an increase of 3.8% compared to $12.3 million in Q1 2022, and revenue was $13.5 million in Q2 2021. The sequential improvement in revenues was driven by large simulator build and upgrade projects in Performance Improvement Solutions, offset by a sequential decrease in Workforce Solutions. The year over year decrease of $0.8 million was primarily due to the wind down of large projects resulting in a reduction of staffing from our major customers, which continues to affect the power industry.

Performance Improvement Solutions revenue was $8.0 million in Q2 2022 compared to $6.4 million in Q1 2022, and $6.9 million in Q2 2021. The sequential and year-over-year increase was largely due to several significant simulator upgrade projects which began later in 2021 with continued work performed in the first six months of 2022.

Workforce Solutions revenue was $4.8 million in Q2 2022 compared to $5.9 million in Q1 2022, and $6.7 million in Q2 2021. The sequential and year-over-year decrease mainly is due to the reduction in workforce requirements.

Gross profit in Q2 2022 was $3.2 million, or 24.9% of revenue. This compared to gross profit of $2.7 million, or 19.9% of revenue in Q2 2021, and $2.4 million, or 19.8% of revenue in Q1 2022. the increase in gross margin was primarily related to an increase in larger simulator build and upgrade projects awarded this year.

Operating expenses in Q2 2022 were $4.9 million compared to $4.1 million in Q2 2021. Operating expenses was $5.0 million in Q1 2022. Operating expenses stayed steady compared to prior quarter. We continue to maintain tight expense controls despite inflationary pressures.  

Operating loss was approximately $(1.7) million in Q2 2022, compared $(1.4) million in Q2 2021. Operating loss was $(2.6) million in Q1 2022.

Net loss in Q2 2022 was $(1.4) million or $(0.07) per basic and diluted share, compared to net income of $3.2 million or $0.16 per basic and diluted share in Q2 2021. Net loss was $(3.4) million or $(0.16) per basic and diluted share in Q1 2022.

Adjusted net loss¹ totaled $(1.2) million, or $(0.06) per diluted share in Q2 2022, compared to adjusted net loss of $(0.6) million, or $(0.03) per diluted share, in Q2 2021. Adjusted net loss¹ totaled $(2.2) million, or $(0.10) per diluted share in Q1 2022.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") for Q2 2022 was approximately $(0.7) million, compared to $3.8 million in Q2 2021. EBITDA for Q1 2022 was approximately $(2.7) million.

Adjusted EBITDA¹ totaled $(0.7) million in Q2 2022, compared to $(0.4) million in Q2 2021. Adjusted EBITDA¹ totaled $(1.7) million in Q1 2022.

Backlog at June 30, 2022, was $34.0 million, including $27.5 million of Performance Improvement Solutions backlog, and $6.5 million of Workforce Solutions.

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, August 15, 2022 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/Ln0qXx9gWYo. 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 # 9763392. 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

We are the future of operational excellence in the power industry. As a collective group, GSE Solutions leverages top skills, expertise, and technology to provide highly specialized solutions that allow customers to achieve the performance they imagine. Our experts deliver and support end-to-end training, engineering, compliance, simulation, and workforce solutions that help the power industry reduce risk and optimize plant operations. GSE is proven, with over four decades of experience, more than 1,100 installations, and hundreds of customers in over 50 countries spanning the globe. 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.

EBITDA and Adjusted EBITDA Reconciliation (in thousands)

References to "EBITDA" mean net (loss) income, before considering interest expense, provision for income taxes, depreciation and amortization. References to Adjusted EBITDA excludes employee retention credit, restructuring charges, stock-based compensation expense, impact of the change in fair value of derivative instruments and VAT write-off. EBITDA and Adjusted EBITDA are not measures of financial performance under U.S. GAAP. Management believes EBITDA and Adjusted EBITDA, in addition to operating profit, net income and other U.S. 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 U.S. GAAP. A reconciliation of non-GAAP EBITDA and Adjusted EBITDA to the most directly comparable U.S. GAAP measure in accordance with SEC Regulation G follows:

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

References to Adjusted Net (Loss) Income excludes the employee retention credit, restructuring charges, stock-based compensation expense, impact of the change in fair value of derivative instruments, VAT write off and amortization of intangible assets related to acquisitions. Adjusted Net Loss and Adjusted Loss per Share (adjusted EPS) are not measures of financial performance under U.S. GAAP. Management believes adjusted net loss and adjusted loss per share, in addition to other U.S. 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 and non-cash items that may, or could, have a disproportionate positive or negative impact on our results for any particular period, such as stock-based compensation expense. 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 U.S. GAAP. A reconciliation of non-GAAP adjusted net loss and adjusted loss per share to U.S. GAAP net loss, the most directly comparable U.S. GAAP financial measure, is as follows:

SOURCE GSE Systems, Inc.