Q4 2019 Earnings Call

Greetings and welcome to the G.S.C. solutions fourth quarter on full year 2019 financial results Conference call.

At this time all participants are in listen only mode. A brief question answer session will follow the formal presentation.

Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is all my pleasure to introduce your host probably all of the equity group. Thank you Mr. al you may begin.

Thank you I Diego and good afternoon, everyone. Thank you for joining us today before we begin I would like to remind everyone that statements made during the course of this call maybe considered forward looking statements within the meaning of section 27 eight.

Securities Act 1933, as amended and a section 20, Onee even Securities Act of 1934.

These statements reflect current expectation expectations concerning future events and results.

Words, such as a expect intend believe.

May will should could anticipate.

And similar expressions are words, there used to identify forward looking statements, but they're absence does not mean a statement is not forward looking.

Mr are not guarantees of future performance and are subject to risks and uncertainties and other important factors that could cause actual performance or achievements to be materially different from those projected.

For full discussion of these risks uncertainties. The factors your interest to reach yes. These documents on file with the Securities and Exchange Commission.

Including those set forth in periodic reports filed under the forward looking statements in risk factor section.

She has he does not intend to update or revise any forward looking statements whether it was result of new information a future events or otherwise.

On this call a management may refer to EBITDA adjusted EBITDA.

Adjusted net income and adjusted EPS, which are not measures of financial performance under generally accepted accounting principles are gap management believes that these non-GAAP figures. In addition to their other GAAP measures provide meaningful supplement mental information regarding the company's operational performance.

Management uses these non-GAAP measures to evaluate the performance of G.S. These business and to make certain operating decisions such as budgeting planning to employee compensation and resource allocation.

This information facilitates management's internal comparison to a G.S. These historical operating results as well as the operating results of its competitors since management finds these measures useful Jesse believes that investors may benefit by evaluating both GAAP and non-GAAP results.

Investors should recognize that these non-GAAP figures might not be comparable to similarly titled measures of other companies.

These measures should be considered in addition to a and not as a substitute for or superior to any measure of performance prepared in accordance with gap.

A reconciliation of non-GAAP measures to their most directly comparable GAAP measures in accordance with FCC regulation G can be found in the company's earnings release.

I'd now like to turn the call over to Mr., Kyle Loudermilk, Chief Executive Officer of G.S.C. Cow up. Please go ahead.

Thank you Callie I'd like to welcome everyone to G.S. He is fourth quarter 2019 financial results conference call joining.

Joining me on today's call is Emmett Pepe, our Chief Financial Officer.

Earlier today, we issued a press release, covering our fourth quarter and full year 2019 financial results hopefully you've had a chance to review this news release, but that's not a copy could be called on our website at www Dot G.S.U.S. dotcom under the new section.

First of all covered 19, it's on the top of our mine. So I'll begin today's call with an overview of her organization is addressing risks related to its spread and briefly discuss our view of its impact on T.S., whose business.

First let me say, our thoughts or what those individuals who sell spend directly impacted by this outbreak as follows that wasn't the frontline settling the crisis.

We're committed to protecting our employees business partners and customers and this time at the certainty.

In this regard we are prohibited travel by Jesse personnel, all countries with a level three health benefits [noise].

Elsewhere, we are engaging in only central travels we remain in close communication with our clients through virtual platforms, including traditional slots named <unk> and conference calls Videoconferences an email.

Moreover, we implemented a plan for our employees to work remotely from coal and the results of productivity have been good so far.

We do up certain team members to work at client locations, that's essential service providers.

Those employees have been instructed to be aware of and comply with all safety and breast mitigation measures implemented by our customers.

Our own breast mitigation plan, which follows the leading local and national authorities and agencies has been communicated throughout our organization and to clients who have inquired about it.

All this difficult to quantify the precise impact a pickup in 19 outbreak in our business.

Recently, we were forced to follow just a few billable employees at Hyperspring. It quite request on the other had our absolute consulting business is providing payroll services for more than 100 individuals deployed on a new project to handle.

Hi services first standup hospital in long Beach, California, and supported the state's covered 19 efforts [noise]. This is an excellent example of our team's ability to adapt to capitalize on outside the box opportunities.

I'm proud of her teams resilience and being part of the national solution.

By and large or nuclear industry clients it doesn't need to GRC any central services provider as such projects under way to remain in place and continue so far.

Well early in this crisis, we continue to receive new orders, but what Didnt has paid a potential delay certain new orders and client activities as they look to determine the impact of covered 19 on their respected environments.

A lot of simply unknown at this point.

We are doing everything in our control to manage our operations effectively during these challenging times Fortunately as I've stated our services aren't considered essential given our critical role in supporting the safe and efficient operation Arclights nuclear facilities, which slipped <unk> reliable always on carbon free power to the grid.

I would like to note that you see a submitted our application to participate in the paycheck to paycheck protection program through the small business administration the citizens our citizens bank our lender of record.

We have applied for 10 million, which represents the amount for which we believe we are eligible.

We will see if and when and to what extent this is approved and keep people a price.

Moving onto our financial results I'm pleased with our team's dedication and efforts to return DP engineering to positive adjusted EBITDA This quarter.

It was no easy feat after GPS largest customer suspended and terminated its engineering of choice contract early or the gear.

We have taken costs out of Dps business and streamlined structure to be profitable at a lower annual revenue run rate, which near term is expected to be approximately five to 6 million.

Our slip remediation actions up in short the GP can continue to deliver superior quality engineering services to our clients.

And our performance solutions segment orders totaled 8.4 million down from 10.9 million. The prior year quarter with that said, we have a steady flow a base meat and potato business as we continue to provide exceptional services to critical endure industry in a period of time, that's between large fullscope simulator projects.

For example, this quarter, we won a multiyear contract work approximately 1.7 million with a longstanding large petrochemical client for our ambition on demand SaaS solution.

This agreement is indicative of the highly sticky nature of our business and the favorable adoption of our new SaaS platform.

We expect more deals like this the following 2020.

After quarter end, we announced a strategic collaboration with Abbvie belly, Japan for thermal simulation in the Japanese power market.

Together, we will develop high fidelity operation turning simulators combined with a b valleys industry, leading distributed control systems for Japanese fossil market.

We're very excited about the long term potential of this partnership.

And our nuclear industry training consulting segment.

Orders totaled 7.8 million down from 8.5 million and the prior year quarter.

Prior to the Cobot 19 crisis, we were in a discussion surrounding some potentially significant new contracts for 2020, and we'll update investors as these opportunities evolve.

The long term demand outlook for industry staffing and training services remains very strong given the nuclear industries aging workforce.

Our total backlog at the end of Q4 was approximately 52.7 million consisting of 37.2 million or performance improvement backlog 1.7 billion, which was attributable to TP engineering and 15.5 million if an ITC backlog.

Our total backlog was 53.7 billion at September September Thirtyth, 2019, and 70.6 million at the end of 28.

We believe we view this as good information.

As we are maintaining our backlog on a quarter over quarter basis, we believed that our current backlog level will support our core business, while we built and execute our business development strategy in both the performance and I see segments to drive organic growth this year.

Regarding our balance sheet since fourth quarter reward off real estate that it's no longer needed for GP as well Superflous space at our cycle office, we have enough remaining space for our workforce to operate efficiently and these actions enable us to move aggressively on opportunities to sublet excess square footage before the leases expire.

This quarter. We also received an amicable settlement with the seller CDP to recover approximately $2 million, which we used to pay down a portion of our debt.

This was good and a significant health.

We'll see how solid business generates robust cash flow, allowing us to strengthen our balance sheet.

At quarter end, our total debt was 18.5 million and our cash position was 11.7 million in.

In early January we pay down our debt by an extra $3 billion.

We intend to pay down our debt aggressively moving forward and 1 million payment was made at the end of March and we anticipate making an additional payment of over 2 million by the ended June.

By year end, we expect to be able to refinance our remaining debt and believe we can approach and that tech neutral position by year end.

Ultimately, we should be in a better position to pursue other value, creating capital allocation options such as the potential repurchasing our common stock.

In the current volatile environment, we believe Jesse shares represent substantial value.

Having a drastic these issues in 2019, we believe 2020 will be clean year profitable growth for GLC, while acknowledging that the precise impact could buy Tina stolen.

We see potential for meaningful uptick in our.

Nuclear engineering, turning consulting segment, plus the coded 19 crisis and a continued steady flow of business on the performance improvement solutions side of our business.

Coinciding with the spirit of starting fresh and 2020 this quarter, we rebranded GFC systems Sjfc solutions to help unify the market presence across acquired businesses entry reflect more accurately our comprehensive suite of solutions for the global power industry.

Our rebranding effort includes a new parent company marketing identity, but unified web site and reposition solution set focused on the people services and products that our company provides to industry.

Among other corporate developments this quarter, our board elected Catherine O'connor gardener as a new company director.

Now turning previously was senior Vice President corporate credit research analyst within Aliansce Bernstein titled Research Group, focusing on the energy sector and managing director at Deutsche Bank, where she also covered energy.

Catherine brings exceptional level of financial expertise that will benefit GST and our financial planning efforts as we look to optimize shareholder value.

In closing gcs emphasis today is on protecting the health and safety of our employees and clients during the cold with 19 pandemic, while working diligently to grow organically streamline operations contain costs maximize cash flow and pay down debt.

While we are focused on organic growth, we remain open to transformative M&A opportunities, we provide complex solutions and services to blue chip nuclear power customers, which produce most of the world Spaceland carbon free energy.

Clear Platts must be operated maintained and service regardless of global disruptions, including cobot downstream.

I think essential services providers. This critically important demonstrate GST is poised to execute on our thesis in 2020.

[noise] the longer term fundamentals of our end market remained solid its nuclear power industry continues to invest for safety operational reliability extensional plant by and performance improvements to generate more power from existing assets given the difficult to replicate assets specialized plays an innovative technologies that we have amassed under a single.

To service provider platform, we're very optimistic about she sees feature.

Ill now turn the call over to Emmett Pepe, our CFO, who will review the fourth quarter financial results and that please go ahead.

Thank you Paul.

Total revenue Q4, 2019 was 17.3 million compared to 22.9 million in Q4 2018.

Reflecting a 3.2 million decrease in our performance improvement segment revenue and a 2.4 million decrease in art and ITC segment revenue.

The decrease in performance improvement revenue was driven primarily by the successful conclusion and commissioning of three new Fullscope simulators to a southern nuclear utility in mid 2019.

As well as a full scope simulator build in Slovakia that it's near this nearing completion.

The decline and ITC revenue was primarily due to lower staff augmentation needs from customers during the quarter.

Touched on previously we're excited about new business development activity in this segment had a well position to deliver improved results in 2020.

Gross profit in Q4, 2019 totaled 5 million compared to 6.5 million in Q4 2018.

Performance improvement gross profit declined by approximately 1.7 million to 5.1 million.

And ITC gross profit increased approximately 250000 year over year to 1.6 million driven by a greater mix of higher margin projects. In 2019, we invested in that business development function buying three new salespeople and are beginning to see the returns of that investment.

Yes, Gina expenses totaled 3.9 million in Q4, 2019 versus comparable figure or 3.8 million. In Q4 2018, we continue to stay focused on managing our us unit cost, which were relatively flat year over year. Despite the acquisition of TP engineering.

Operating loss equaled approximately 1.5 million in Q4 2019 compared to operating income of 1.8 million Q4 2018.

Year over year decline in operating income was driven by 1.7 million in restructuring charges due to the write down of unused space all our current lease obligations. Its thanks, Phil, Maryland, and Fort Worth Texas.

Corporate shrunk for approximately 56000 square feet 25000 square feet, we're actively looking to sublease the unused space to mitigate the cash outflows current lease obligations.

Non-GAAP adjusted EBITDA as defined in our earnings release totaled approximately 1.8 million in Q4 2019 compared to approximately 2.8 million in Q4 2018.

We concluded Q4 2019 with a cash position of 11.7 million in total debt of 18.5 million.

Which decreased by 1.2 million compared to the end of Q3 2019, reflecting debt payments were made during the quarter.

Regarding our debt citizens bank. We're currently in a process of amending our terms and expect to announce those changes this coming week.

I'll now turn the conversation Dr. Carl.

Thank you operator, please open the floor for questions.

Thank you we will now conduct our question and answer session.

He would like to ask the question. Please press star one on your telephone keypad, a confirmation tone indicate that your line is in the question Q you May press Star too if you would like to remove your question from the Q for participants do you think speaker equipment, and maybe necessary to pick up your handset before pressing the star Keith.

Well cost for a few moments us either any questions. Thank you.

Our next first question comes from Sam Rebotsky.

We would see our asset management. Please state your question.

Yeah has the real estate been written down.

Zero that any.

Rental would produce a proper it or what do we carrying that Ed.

Oh, that's a good question yet do you want to pick up.

Yeah I'll take it so yeah, we we portion dos and cordoned off and made idle space and we wrote that down to zero. So if we were to sublease that.

I would be upside yes.

Is that.

We should all he has been red.

Yes is there were a range of potential.

Rental income for the.

Yes, let me we're actively marketing this the space.

And the the the marketing out there is.

You know, it's negotiable I mean, I think we you'll find our successful space has been marketed anywhere from.

As lowest $13 per square foot up to about $17 per square foot that would be the range.

And no fort worth spaces, because that's what you're looking for.

Yeah, that's definitely out there yes.

It and they do we expect to basically.

With the Corona virus.

Do we expect the 17 billion to be a normal.

Run rate and where we made a profit so is it.

Back to be profitable going forward.

[noise] Emmett do you want to take that well I mean, what.

I mean, we clearly expect to the business to to to be a profitable business lobby, we wouldn't give you guidance as to run rate and as Carl mentioned, we really have yet to see in are still assessing any impact right up at this point, where we've got new orders.

I mean, there's probably some some things that will slip but load out go away because they need to be done by the by our customers. So I think we're not prepared to really kind of dig into can book Corona impact because that's still being assessed.

I'm, sorry, what what with the operating income.

Million I'm, sorry, you may have mentioned it did I sort of miss that.

[noise] [noise] I'm sorry go ahead, please but what was your question offer an operating loss. This quarter was 1.5 million loss compared to operating income of 1.8, right Freebie has got a year ago quarter.

The on August 27, the demand and then that minute allocation that 2 million is that the 2 million below the line there.

In the quarter ending December [noise].

[noise] [noise], yes that is.

Okay.

So so based on other than that you'd be losing money in this quarter.

And so you would need more than 17 million, it's a breakeven basically.

[noise] [noise] <unk> <unk> everything is going to be unique to.

Mixes on margin and and other costs.

Keep in mind, we also have the 1.7 million of restructuring cost in the quarter.

Okay. Okay, alright, thank you very much.

Hopefully good luck.

Thank you.

Thank you and just to remind her to ask a question press star one on your telephone keypad.

Please standby as we pull for questions.

Ladies and gentlemen, there no further questions I'll turn it back to kind of loudermilk for closing remarks. Thank you.

Okay. Thanks, very much first of all I'd like to thank everyone for joining US. We appreciate your time and interest in Jesse while we won't be on the road for Investor conferences in the near term given cobot 19, we are our and remain accessible for one of them on calls so please reach out to our IR firm the equity group if you're.

Interested and scheduling a follow up all and certainly look forward to speaking with you.

Thank you everybody.

Thank you. This concludes todays call a part of that disconnect have a good day.