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GSE Systems Announces 2013 Second Quarter Financial Results



  GSE Systems Announces 2013 Second Quarter Financial Results

Q2 2013 OVERVIEW

  * Revenue of $11.0 million compared to $13.2 million in Q2 2012.
  * GSE recorded a one-time, non-cash goodwill impairment charge of $4.5
    million and a non-cash write-down of capitalized software development
    costs of $2.2 million in Q2 2013.
  * Operating loss of $8.0 million (including non-cash charges) compared to
    operating income of $0.6 million in Q2 2012. Excluding these two non-cash
    items, Q2 2013 operating loss was $1.3 million.
  * Net loss of $8.2 million (including non-cash charges) compared to net
    income of $0.2 million in Q2 2012. Excluding non-cash charges, net loss
    was $1.6 million.
  * EBITDA of $(1.4) million compared to EBITDA of $0.5 million in Q2 2012.

At June 30, 2013

  * Total cash and equivalents of $21.1 million, or $1.16 per diluted share
  * Working capital of $26.3 million
  * $0 long-term debt
  * Backlog of $39.0 million

Business Wire

SYKESVILLE, Md. -- August 14, 2013

GSE Systems, Inc. (“GSE” or “the Company”) (NYSE MKT: GVP), a global energy
services solutions provider, today announced financial results for the quarter
ended June 30, 2013.

Jim Eberle, Chief Executive Officer of GSE, commented, “Our results for Q2
2013 were materially impacted by a decline in revenue caused by delays in
customers’ decisions with respect to in excess of $17.0 million of potential
orders and, more significantly, $6.6 million of one-time, non-cash charges. We
believe decisions on a number of projects that were delayed from the first
half of 2013 will be made in the second half of 2013 and the first quarter of
2014. We have taken appropriate actions by reducing staff and operating
expenses that we believe will produce annualized savings of approximately $1.0
million. We believe that the combination of expected new orders and cost
savings will produce an improvement in the third quarter of 2013 and a return
to profitability in the fourth quarter of 2013. If the expected new orders do
not occur on a timely basis, we are prepared to take additional measures to
return to profitability. We ended the quarter with a very strong balance
sheet, including cash and equivalents of $21.1 million, or $1.16 per diluted
share, working capital of $26.3 million, and no long-term debt. Reflecting the
long-term optimism we have for our business, we repurchased 216,399 shares of
our common stock in Q2 2013 and expect to remain in the market on a go forward
basis.

“Based on the last several quarters, it is clear that some nuclear customers
and governments have paused, slowed, and in some cases canceled nuclear
related capital projects. This is mainly the result of three issues: the
impact of the Fukushima disaster in March 2011, the overall sluggishness of
the world economy, and the very low natural gas prices. Thus the Company is
focusing on nuclear simulation business in those areas of the world where
nuclear energy will be expanding, selling its Post-Fukushima solution products
PSA-HD^TM and DesignEP^TM, and ControlSim^TM which helps with the design and
testing of new plants and modifications.”

Q2 2013 RESULTS

Q2 2013 revenue declined 16.3% to $11.0 million from $13.2 million in Q2 2012.
Higher revenue from the $36.0 million Slovakia simulator project in Q2 2013
($2.5 million) compared to Q2 2012 ($0.5 million) was offset by a $2.0 million
decline in revenue from nuclear simulation projects in Japan and Germany. The
Slovakia simulator project is expected to be substantially completed in Q1
2014. In addition, in Q2 2012 the Company completed two significant nuclear
simulation projects: one was for a full scope AGR replacement simulator with a
British utility, the other was for significant upgrades to a Ukrainian
simulator. These projects generated revenue of $1.4 million in Q2 2012.

Gross profit in Q2 2013 was $0.6 million, or 5.8% of revenue, as compared to
$4.5 million, or 33.9% of revenue, in Q2 2012. Gross profit for Q2 2013
included a $2.2 million, one-time, non-cash charge to write-down certain
capitalized software development costs. Excluding this charge, gross profit in
Q2 2013 was $2.8 million, or 25.5% of revenue.

The decline in gross profit was largely driven by the higher percentage of
revenue associated with the Slovakian project in Q2 2013 (22.4%) as compared
to the percentage of revenue from the Slovakian project in Q2 2012 (4.2%)
Revenue from the Slovakia project has a substantially lower gross profit
margin than GSE’s normal gross profit margin due to an inordinate amount of
hardware being supplied.

Operating loss for Q2 2013 was $8.0 million compared to operating income of
$560,000 in Q2 2012. Excluding the above-referenced one-time, non-cash charges
of $6.6 million, the operating loss for Q2 2013 was $1.3 million in line with
Q1 2013, primarily resulting from lower total revenue and revenue mix.

Net loss for Q2 2013 was $8.2 million, or $0.45 per basic and diluted share,
compared to net income of $158,000, or $0.01 per basic and diluted share, in
the same period last year. Excluding the $6.6 million in one-time, non-cash
charges, the net loss for Q2 2013 would have been $1.6 million, or $0.09 per
diluted share.

The EBITDA (Earnings before interest, taxes, depreciation and amortization,
plus other one-time items) loss for Q2 2013 was ($1.4 million) compared to
EBITDA of $0.5 million in Q2 2012.

Backlog at June 30, 2013 was $39.0 million compared to $51.9 million at
December 31, 2012.

GSE’s cash position at June 30, 2013 was $21.1 million, excluding $2.2 million
of restricted cash up from $18.7 million at March 31, 2013.

CONFERENCE CALL

Interested parties may participate in the call by dialing:

  * (877) 407-9753 (Domestic) or
  * (201) 493-6739 (International)

The conference call will also be accessible via the following link:
http://www.investorcalendar.com/IC/CEPage.asp?ID=171333

ABOUT GSE SYSTEMS, INC.

GSE Systems, Inc. is a world leader in real-time high-fidelity simulation,
providing a wide range of simulation, training and engineering solutions to
the energy 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 St. Marys,
Georgia; Madison, New Jersey; Cary, North Carolina; Chennai, India; Nyköping,
Sweden; Stockton-on-Tees, UK; Glasgow, UK; 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)
                                                                   
                (unaudited)                        (unaudited)
                Three Months ended                 Six Months ended
                June 30,                           June 30,
                  2013             2012              2013             2012
                                                                     
Contract        $ 11,034         $ 13,183          $ 23,417         $ 26,572
revenue
Cost of           8,219            8,713             17,521           18,183
revenue
Write-down of
capitalized
software          2,174            -                 2,174            -
development
costs
                                                                     
Gross profit      641              4,470             3,722            8,389
                                                                     
Selling,
general and       3,946            3,694             8,111            7,180
administrative
Goodwill
impairment        4,462            -                 4,462            -
loss
Depreciation      146              138               299              275
Amortization of
definite-lived    52               78                104              156
intangible
assets
Operating         8,606            3,910             12,976           7,611
expenses
                                                                     
Operating         (7,965     )     560               (9,254     )     778
income (loss)
                                                                     
Interest          24               34                63               85
income, net
Gain (loss) on
derivative        (410       )     (384       )      (143       )     16
instruments
Other income      94               93                (11        )     179
(expense), net
                                                                     
Income (loss)
before income     (8,257     )     303               (9,345     )     1,058
taxes
                                                                     
Provision
(benefit) for     (58        )     145               9                370
income taxes
                                                                     
Net income      $ (8,199     )   $ 158             $ (9,354     )   $ 688
(loss)
                                                                     
                                                                     
Basic income
(loss) per      $ (0.45      )   $ 0.01            $ (0.51      )   $ 0.04
common share
Diluted income
(loss) per      $ (0.45      )   $ 0.01            $ (0.51      )   $ 0.04
common share
                                                                     
Weighted
average shares    18,299,108       18,391,988        18,320,653       18,398,790
outstanding -
Basic
Weighted
average shares    18,299,108       18,489,690        18,320,653       18,495,693
outstanding -
Diluted
                                                                       

 
GSE SYSTEMS, INC AND SUBSIDIARIES
Selected balance sheet data
                              (unaudited)
                               June 30, 2013    December 31, 2012
                                                 
Cash and cash equivalents     $     21,091      $      22,386
Restricted cash - current           979                743
Current assets                      45,736             50,057
Long-term restricted cash           1,177              1,192
Total assets                        51,665             62,564
                                                 
Current liabilities           $     19,459      $      20,275
Long-term liabilities               776                1,459
Stockholders' equity                31,430             40,830
                                                        

                            EBITDA Reconciliation

EBITDA is not a measure of financial performance under generally accepted
accounting principles (“GAAP”). Management believes EBITDA, in addition to
operating profit, net income and other GAAP measures, is 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. Investors
should recognize that 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 EBITDA to the most
directly comparable GAAP measure in accordance with SEC Regulation G follows:

                                                                    
                                Three Months ended      Six Months ended
                                June 30,                June 30,
                                  2013         2012       2013         2012   
                                                                      
Net income (loss)               $ (8,199 )   $ 158      $ (9,354 )   $ 688
Interest income, net              (24    )     (34  )     (63    )     (85   )
Provision (benefit) for           (58    )     145        9            370
income taxes
Write-down of capitalized         2,174        -          2,174        -
software development costs
Depreciation and                  198          216        403          431
amortization
Goodwill and impairment           4,462        -          4,462        -      
loss
EBITDA                          $ (1,447 )   $ 485      $ (2,369 )   $ 1,404  

Contact:

GSE Systems, Inc.
Jim Eberle, Chief Executive Officer, 410-970-7950
or
The Equity Group Inc.
Devin Sullivan, Senior Vice President, 212-836-9608
dsullivan@equityny.com
or
Thomas Mei, Associate, 212-836-9614
tmei@equityny.com
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