GSE Systems, Inc. (NASDAQ:GVP) Q3 2023 Earnings Call Transcript

This helps to put the company on better footing going forward. Emmett will provide more details on our cost management initiatives in his remarks. The company’s performance Engineering division continued to demonstrate improvements with a nice stream of wins of new business, many of which we have announced during the quarter and recently wins of strategic new logos, expansion of engineering services to provide value added to a uranium enrichment company, 2 nuclear operators in Texas, just to name a few. The Performance Engineering division also is where we have our software and support sales, which were $1.4 million during the quarter and $3.7 million year-to-date, up 3% from the same period a year ago. As we mentioned in the past, the software side of the business has provided excellent margins and now represents a growing annuity.

It’s beginning to look much like a software business. New orders for performance engineering during the third quarter were $13 million, significantly higher from the second quarter, which were $4.9 million due to timing of some orders that closed in Q3 instead of Q2. With that said, year-over-year increases in orders were better for the division, which were compared to $7.2 million. We feel that this improved order flow for engineering and services and technology licenses is a leading indicator that industry is slowly ramping back. The improvement, I feel also demonstrates GSE’s tenacity in being able to develop and win more business through tight interaction with customers, and I’m proud of the team effort here and promising early results of our alignment with the market.

Our Workforce Solutions business continues to experience challenges. Segment had revenue of $2.9 million in the third quarter of 2023, sequentially lower from $3.3 million in the second quarter and compared to $3.8 million 1 year ago. While we have retooled the division as expressed in prior conference calls, the division continues to lag as customers are still being selective with regards to on-site staff augmentation services. We have aligned this business to critical new opportunities in nuclear such as the $15 million project win highlighted earlier. We’re eager for client spend on the project to ramp as their supply chain challenges get addressed. We did have some solid order flow in the quarter, which were offset by early project terminations by customers in the tune of $1.7 million.

it’s hard to predict or estimate any early project terminations, but it is an inherent part of this business as customers either complete projects or allocate funds to different projects that may be deemed as a higher priority. While these challenges persist, I’m pleased that the division despite lower volumes, reported a breakeven quarter on an adjusted EBITDA basis. This gives us some solace that the division has potential upside with customers start to ramp up spending on certain projects. To summarize, we have successfully rightsized the company in order to improve our utilization on an ongoing basis. I believe the third quarter really demonstrates that success. It was our first adjusted EBITDA positive quarter in 2 years and our strongest positive adjusted EBITDA quarter since 2020.

We continue to engage with as many customers and potential new customers as well. We are making sure that the vendor — we are the vendor of choice and educating them in the breadth of services we can offer them by using GSE as a key provider. Our recent contract wins announced over the prior weeks demonstrate meaningful progress in this dimension. Our business pipeline continues to remain strong. And while we are not in control of client decisions to move forward on projects, we are doing all we can to engage with customers and prospects and develop wins. While the industry spend is still at a very conservative level compared to prepandemic norms, things are improving at GSE for order flow on the engineering side as a result of our efforts.

Our GSE new order flow for the first 9 months so far of 2023 is $39 million. This equals the order flow for the entire year of 2022. We are optimistic this momentum will continue. I’m proud of our team’s accomplishments in driving improvement in the third quarter. I believe this demonstrates we’re focused on turning this company around. While we were — that momentum was building faster, we do continue to make progress towards achieving our goals and increasing orders, backlog and revenue growth. The new orders already received and announced in the third quarter are a step in that right direction. I’ll now turn the call over to Emmett Pepe, GSE’s CFO, who will review the third quarter financial results. Emmett, please proceed.