Q2 2020 GSE Systems Inc Earnings Call

Greetings and welcome to the D. C solutions second quarter 2020 financial results Conference call at this time, all participants Arnie listen only mode.

Question answer session will follow the formal presentation.

I know what Youve acquire operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kelly all of the equity group. Thank you you may begin.

Thank you Jesse and good afternoon, everyone. Thanks 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 27 <unk> section 20, Sevena Skouries active 1933 as amended and section 20 of the Securities Act of 1934.

These statements reflect current expectations concerning future events and results.

Words, such as expect intend believe may will.

Hi, good could anticipate and similar expressions are a words that are used to identify forward looking statements, but they're absence does not mean a statement is not forward looking.

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

For a full discussion of these risks uncertainties and factors you're encouraged to read just these documents on file with the U.S. <unk> Securities and Exchange Commission.

Putting those set forth in periodic reports filed under the forward looking statements and risk factor section. She has he does not intend to update or revise any forward looking statements were the result of new information future events or otherwise.

On this call management may refer to EBITDA adjusted EBITDA adjusted net income in 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 other GAAP measures provide meaningful supplemental information regarding the Companys operation performance.

Information facilitates management's internal comparisons to Jesse's historical operating results as well as the operating results of its competitors. Its management finds these measures useful. She has he believes that investors may benefit by evaluating both non-GAAP and 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 and not as a substitute for or.

We are 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 regulation G. FCC 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 Jesse Solutions a cow. Please go ahead.

Thank you Callie I'd like to welcome everyone to Jesse's second quarter 2020 financial results Conference call. Joining me on today's call is Emmett Pepe, our Chief Financial Officer.

Earlier today, we issued a press release covering our second quarter financial results hopefully you've had a chance to review this news release, but if not copies can be found on our website at www Dot G.S.U.S. dot com under the new section.

It's been less sort of month since our last conference call given that we're catching up on our overall quarterly five filings.

So I'll keep my opening remarks brief.

After some recording delays during the onset the Tobin 19 pandemic, we're glad to be back on track and we anticipate timely quarterly filings moving forward.

As anticipated our second quarter financial results were depressed due to the cobot 19 pandemic.

Endemic has resulted in the industry wide RFP delays project postponements and softer customer demand. Nonetheless, we generated positive cash flow and pay down approximately 3.5 million of long term debt during the quarter.

This demonstrates our ability to manage through the current challenges three providing essential services to our industry, while operating the business within the constraints of the pandemic.

We reported second quarter revenue of 14 point Threemillion and adjusted EBITDA negative 191000, both of which four below the respective prior year comparable figures and well below the normalized potential of our business.

In response to the Coven 19 pandemic, our clients have taken a very conservative near term approach to commencing new projects slaying work when possible and limiting or use of staff augmentation to keep onsite employees to bare minimum.

Given that our clients apparently hours of their own workforces to encourage social distancing. It is not a surprise that the industry is experiencing a temporary dearth of new staff augmentation awards, our nuclear industry training a consulting segment was no exception this quarter with limited new orders, which were more than offset by a significant projects stoppage during.

<unk> period at one of our clients facilities, specifically due to cobot die team.

Our expectation is that this project will pick up in 2021 to assess work is essential in this environment. We're fortunate to have a scalable model in which our and ITC employees are only on our payroll if they are billable.

Notwithstanding the challenges this quarter, we're pursuing a few very significant staff augmentation opportunities and are cautiously optimistic that well, we will have favorable news to share in the second half a year.

The long term demand outlook for staffing and training services remains robust given the unique needs of the nuclear power industry.

In our performance segment orders totaled 7.1 billion up from 3.7 million in the prior year quarter.

We want to study flow a fundamental meat potato business as we continue to provide essential services to a critical industry in a period of time that was between large fullscope simulator projects.

Our ability to continue to secure additional funding for a long standing time and material contracts and to win various smaller system design and build projects. During these challenging times validates our strategy and the essential nature of our services for the industry.

Our total backlog at the end of Q twos stood at 46.6 million consisting of 31.2 million a performance improvement backlog and 15.4 million up at ITC backlog.

Our backlog along with the new orders that came in during a very challenging quarter impacted by cobot 19 demonstrate that the company is doing all we can to bridge the pandemic and do so with a solid backlog because.

We're working hard to add to these levels in the second half of the year.

This quarter, we generated cash flow from operations totaling approximately $360000 and paid down approximately $3.5 million for a long term debt.

We have been prudently managing our balance sheet and our goal is to pay the remaining balance.

Our debt on our delayed draw term loan facility by the end of the third quarter.

At quarter end, our net debt totaled 5 million consisting of 23.3 million of debt and 18.3 million accounts inclusive of PPP, respectively.

This isn't demonstration of the deep value of our franchise delivering essential services to critical industry.

It is also a testament to our ability to manage through a difficult economic environment generating positive cash flow as we go.

In closing we remain very optimistic about she has seized long term opportunity given our difficult to replicate assets specialized employees innovative technologies do you see delivers essential services that are critical to our clients operational safety and efficiency.

We believe that our customers purchasing behavior will ramp back up although we can't predict the exact timing, giving much given the continuing pandemic.

As we have seen before in times of crisis certain work can only be delayed for a limited period of time.

Nuclear project work routinely has rebounded from industry shocks, including major events, such as Fukushima and the 20, Oh wait financial crisis, and we expect that to be the case post cobot.

In the meantime, or emphasis today is on protecting the health and safety of our employees and clients. During the covered 19 pandemic, while working diligently to grow organically streamline operations contain costs maximize cash flow and pay down debt.

I'll now turn it over the call to Emmett Pepe, our CFO Hillary review, the second quarter financial results and it. Please go ahead.

Thank you tell.

Total revenue in Q2, 2020 was 13.3 million compared to 23.5 million to teach you have 2019.

It's affecting a 4.7 million decrease in our performance improvements segment revenue and a $4.4 million decrease in art and ITC segment revenue.

The decrease in the performance improvement revenue was driven primarily by over 19 related headwinds and our inability to commence certain projects remotely.

Combined with the successful conclusion of a major simulator project in the second quarter of 2019.

The decline and ITC revenue is primarily due to Tobin 19 related headwinds and lower staff augmentation needs from customers during the quarter.

Gross profit in Q2, 2020 totaled 3.6 month compared to 5.9 billion in Q2 2019.

So much improvement gross profit declined by approximately 1.8 million.

2.7 million.

And I Tc gross profit decreased by approximately 495000 year over year to 832000.

The decreases in gross profit for each segment were in line with our revenue declines we continue to manage our cost structure toward this pandemic to maintain our margin percentages.

Sina expenses totaled 4.7 million in Q2 2020 versus the comparable figure of 4.3 million in Q2 2019.

The increase in addition to expenses was driven by provision for losses expected legal settlement of approximately 861000 related to our subsidiary absolute consulting.

Operating loss equaled approximately 1.9 million in Q2 2020 compared to operating profit of approximately 626000 Q2 2019.

Non-GAAP adjusted EBITDA loss as defined in our earnings release part of approximately a negative hundred 91002 2020.

Compared to adjusted EBITDA of 1.9 million in Q2 2019.

We concluded Q2 2020 with a cash position at 18.3 million total debt of 23.3 million. During the first six months of 2020, we paid out 8.6 million of our long term debt.

We are negotiating an amendment to our credit agreement assistance bank, while there should be no assurances as to the outcome of that process, we anticipate utilizing a significant portion of our unrestricted cash to pay down or pay off the term lugs used for the acquisitions of GP engineering, a true north consulting.

We believe that even if we pay off the entire termed out we will have sufficient cash and working capital available to support our ongoing business.

As previously disclosed earlier this year, we received a paycheck protection program low of 10 million.

We have used and plan to continue to use these funds for payroll and related costs wet utilities and other permitted uses.

We're not yet able to determine the about what the P.P. low that might be forgiven.

I will now turn the conversation bucket.

Thank you I'm it.

[noise], we'd like to now open the call to Q in a from the floor. So operator, please open the floor for questions.

Thank you, ladies and gentlemen, if he would like to ask a question at this time. Please press star one on your telephone keypad the confirmation to indicate that your line is in the question Q.

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Please hold when we pull for questions.

Our first question comes from the line of Tim Shuts hard with Merrill investments. Please proceed with your question.

Hi, I Didnt catch the segment revenue for performance and and I do see.

I was trying to take notes, but can you give me those numbers.

And it can you go back and yes, absolutely.

The revenue.

It for.

Performance improvement.

Pulpo totaled Oh, I'm, sorry, that's total revenue apologists digit numbers here.

[noise] step up for performance the revenue for the three months was up 8.3 million.

And I T C for the quarter was 6.1 billion.

So that totaled 14.3 right yes.

Thanks.

Can I ask a separate question or.

Yes, I am not to sell sorry, sorry, I, usually don't do falls to the.

I'll get back in queue language.

Understood that way, but just related to the.

PPP phone I.

I understand.

But most companies that have taken them are working through.

The dynamics of how they work, but is a timetable by which some some future Dave you'll know.

What.

His repayable in what's for doable.

Yes, Matt do you want to pick that RV.

Yes, yes, we based on the timeline, we expect to.

In Q4 of this year, we will have our Oh.

Physician finalized, but then that's also subject to any audits and so forth that might be subsequent to that.

And so it just it just.

And then you would then submit your plan via your Bank and then you would.

And then the bank would then be in touch with U.S.P.A. in any SPD, we'd be back in touch with your bank I'm just trying to this is such a new program. It's a everybody's trying to figure it out but it's just said basically the loop of activity use had been a plan to your bank. The banks in context. He has been in them at some point in time, yes lets the bank mill, what the answer is.

Yes. This is Kyle generally speaking and that is that as the process. So we expect to have this completed by Q4, but ultimately depends on the lender and we flow or information through it back.

And what bank to have did you go through for this was its citizens are yes, our bank record, which as citizens bank.

Which isn't SPD lender.

Understood. Thank you.

Okay. Thanks, operator any other questions.

As a reminder, ladies and gentlemen, if he would like to ask a question at this time. Please press star one on your telephone keypad.

Well for any additional questions.

Well.

[noise].

Once again to your question. Please press star one on your telephone keypad at this time.

It appears we have no additional questions at this time, so I'd like to pass the floor back to management for closing comments.

Alright, thanks, very much Jesse and thanks, everyone for joining US. We appreciate your time and interesting GFC, while we won't be on the road for Investor conferences in the near term due to covert 19, we do remain accessible for one on one calls I'm happy to have them. So please reach out to our IR firm or the equity group and Kaleo, if you're interested and scheduling a follow up.

Paul again, thanks, everybody and B well.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation and you may disconnect your lines at this time.