Q4 2021 GSE Systems Inc Earnings Call
To me. This is the conference operator, thank you for dialing in to the GSE systems Conference call, we will be starting the call and just about one minute. We appreciate your patience and please continue to hold thank you.
[music].
Good afternoon, and welcome to the G. S E systems incorporated fourth quarter and fiscal year 2021 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
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Please note this event is being recorded.
I would now like to turn the conference over to Adam alone One Steiner with Lytham partners. Please go ahead.
Thank you Gary and good afternoon, everyone and thank you for all of US for everyone for joining us today to review the financial results for G. S. E systems for the fourth quarter and fiscal year ended December 31, 2021 with us on the call representing the company today are Kyle Loudermilk, President and CEO of GSE systems, and Emmett Pepe, our Chief Financial Officer.
GSE systems before.
Before we begin I would like to remind everyone that the statements made during the course of this call may be considered forward looking statements within the meaning of section 27 a of the.
The Securities Act of 1933 as amended and section 21 E of the Securities Act of 1934 piece.
These statements reflect current expectations concerning future events and results words, such as expect intend believe may will should could anticipate and similar expressions are words that are used to identify forward looking statements, but their absence does not mean a statement is not forward. Looking these statements are not guarantees of future performance and are subject to risks.
These and other important factors that could cause actual performance or achievements to be material or different from those projected for full discussion of these risks uncertainties and factors you are encouraged to read Gse's documents on file with the Securities and Exchange Commission, including those set forth in periodic reports filed under the forward looking statements and risk factors.
Actors section GSE does not intend to update or revise any forward looking statements whether as a result of new information future events or otherwise on this call management may refer to EBITDA adjusted EBITDA adjusted net income or adjusted EPS, which are not measures of financial performance under generally accepted accounting principles or GAAP management believes that.
These non-GAAP figures in addition to other GAAP measures provide meaningful supplemental information regarding the company's operational performance investors should recognize that these non-GAAP figures may not be comparable to similarly tied measures of other companies. These measures should be considered in addition to and not as a substitute for or superior.
Should you have any measure of performance prepared in accordance with GAAP, a reconciliation of non-GAAP measures to the most directly comparable GAAP measures in accordance with SEC regulation G can be found in the Companys earnings release with that I'd like to now turn the call over to Mr. Kyle Loudermilk, President and Chief Executive Officer of GSE solutions.
Kyle Please proceed.
Thank you Adam I'd like to welcome everyone to Gse's fourth quarter and fiscal 2021 financial results Conference call.
Earlier today, we issued a press release detailing our financial results hopefully you've had a chance to review this news release, but if not a copy can be found on our website at www Dot <unk> dot com under the new section.
To lay out the agenda for today's call I plan on opening my remarks with an overall discussion of the industry, then drill down into commentary on the quarter and fiscal year highlights and the status of each of our divisions, including our engineering segment also known as the performance improvement solutions.
And workforce solutions also known as nuclear industry training consulting or at ITC as well as our SaaS based software solutions.
And then Pepe will then give a recap of the financial results and we will then open the call to any questions at the end.
To start my formal discussion with a macro overview I'd like to say that our thoughts and prayers are with the citizens of Ukraine. The nuclear industry owes a lot to the country of Ukraine, which has several nuclear facilities and of note has had deployments of GSE simulation simulators beginning in the late 19 eighties, Despite a raging war the nuke.
Clean power industry in Ukraine continues to operate and focus on safety with disaster seemingly diverted at the <unk> unit separation of nuclear power plant the world owes the operators of the plant tremendous gratitude and respect for their expertise and commitment to safety.
Better background after the Chernobyl accident 1986, there was a keen interest in improving the safety of Russian designed reactors in 1989 separation nuclear power plant reached out to the west to address this need by adopting modern robust operator training simulators. These simulators are used throughout the world to allow operators to Pratt.
This normal operations as well as how to respond in the event of equipment failure or other abnormal conditions unified at those operation of nuclear power plant was the first Russian designed reactor site to receive one of these moderate simulators through the international nuclear safety programs sponsored by the US Department of energy since then.
<unk> has provided numerous such simulators throughout eastern Europe , including Ukraine, and specifically two additional simulators for units one and three of its operation.
Separation plants commitment to improve safety and training didn't stop with the purchase of the simulator. They embarked on an extensive effort to learn from industry peers, resulting in a multiyear program conducted by western companies to teach and help implement the systemic.
Approach to training methodology adopted by the U S nuclear industry to develop robust and focused training programs. The fact that the plant was able to avoid a catastrophe during the war was years in the making through the plants commitment to safety and training while GSE currently has minimal active project exposure in Ukraine.
The country is near and Dear to us and again, our prayers are with them as the invasion demonstrates reliance on fossil fuels is catastrophic for the world on two dimensions first the west is funding the very despotism that leads to chaos and humanitarian disasters, such as that are unfolding in Ukraine.
Consumption of fossil fuels for power generation, even clean natural gas only further delays to the transition to a zero carbon grid for the west Fortunately the world can defund despotic regimes, while accelerating the transition to a carbon free future nuclear power as a key means by which to accomplish this and there are steps that the worst seems to be.
Care to take to accelerate this transition and.
And driving to zero carbon economy wind and solar simply will not get the west they're in and of themselves stable consistent round. The clock power generation is required and the more wind and solar that comes onto the grid. The more base load power is required the solution for us is nuclear power.
Poland, The Czech Republic, Slovakia, and non adjacent near states in Bulgaria, and Romania have each announced plans over the past year to build new substantial nuclear power generation capacity.
After witnessing this Ukrainian crisis unfold. It is no wonder that these former eastern Bloc countries plan to establish energy security and independence from Russian energy it.
It is no surprise that given recent geopolitical issues that energy security has again come to the forefront.
Many countries are recognizing two things the consistent and affordable energy nuclear offers and how nuclear provides a carbon free source of energy to major pluses.
But even putting aside geopolitics many thought leaders and renowned investors are pointing out the importance of nuclear energy has to offer and bringing those discussion to the forefront.
One of the first to take to Twitter and highlight the importance of nuclear power was Elon musk, starting with how stating how.
Existing nuclear power plants must not be shut down then.
And then came Jack Dorsey as comment of generating more energy not less increases the quality of life for all using our nuclear symbol and emerging.
Most recently it was <unk> first investment venture Investor Marc Andreessen. He stated that the world should build 1000, new state of the art nuclear power plants in the U S and Europe right now so it appears that even silicon valley has come around to the view that nuclear energy provides one of the few sustainable scalable and affordable sources of carbon free energy not only have they come around.
And many are putting their money and wealth to work in nuclear billionaires, including Bill Gates, Jeff Bezos, and Peter Teal have opened their wallets to back next generation nuclear companies and venture investors plowed, a record $3 $4 billion into nuclear startups in 2021 more than every year over the past decade combined according to research firm Pittsburgh.
Yeah.
In addition to these thought leaders and venture capitalists, focusing on nuclear more importantly, energy and utility companies have taken action. The most notable example is exelon spinning off constellation energy, which consists of zero carbon power generation assets.
Entirely comprised of nuclear comprised of the nuclear fleet.
Energy Harbor out of Ohio, recently announced its plans to tradition transition into a 100% carbon free energy infrastructure company in the next year by exiting its fossil fuel businesses.
John Judge energy harbors, President and CEO said over the past two years, it's been made abundantly clear to us that our customers communities and capital market partners recognize the value of partnering with energy Harbor as we help transform clean energy supply the carbon free reliable baseload power generated by our nuclear units is recognized.
As critical infrastructure required for the U S clean energy transition.
With our exit from fossil fuel generation, we will be uniquely positioned as one of the few 100% carbon free energy infrastructure and supply companies in the United States.
Another utility in GSE customer <unk> in New Jersey recently said on their social media channels about the divestiture of their few remaining fossil fuel assets and helping the state of New Jersey to meet its goal of achieving 100% carbon free energy supply by 2050, New Jersey admits that the backbone of its carbon free energy supply.
It continues to be nuclear energy currently delivering more than 90% of the state's carbon free energy and as a national leader when it comes to generating carbon free electricity. Thanks in part to its nuclear plants, which provide nearly 40% of the state's total energy supply.
American Electric power also a customer of GSC recently announced plans to spend $38 billion over the next five years to construct a more efficient grid and deliver custom clean energy solutions to customers. The plant is slated to help deliver low cost reliable energy to customers and help invest in a clean energy future.
Last but not least governments around the world are pushing forward to drastically reduce their respective carbon footprints in December GE, Hitachi nuclear energy BWXT, Canada, and sit so screen energy announced their intention to cooperate and deploying a BW Rx 300 small modular reactors.
In Poland. This comes on the heels of Poland decommissioning, its coal fired plants and embracing newer technologies that can provide sustainable and clean and secure energy. In addition, GE. Hitachi has also been selected by Ontario power generation as a technology partner for the Darlington, New nuclear project and is working with Ontario power to deploy.
BW Rx three hundreds at the Darlington site that should be complete as early as 2028.
In February of this year <unk>.
Small modular reactor manufacturer new scale signed a definitive agreement with K G HN, our Poland based leader in copper and silver production and large industrial energy user to deploy the first <unk> in Poland.
Under this agreement new scale will work with Kate K G. H M to support the deployment of <unk> technology and together the organizations will take steps towards deploying our first new scale voyage or power plant in Poland as early as 2029.
K G. HN expressed that they were pleased to sign this deal to help lead the initiation of a 100% carbon free energy project and deliver on its commitment to decarbonize.
Bulgaria, Similarly announced their plans to build a new scale smart facility targeting to be the first operable new scale plant and coming online before the end of the decade Bulgarian energy holding has signed a memorandum of understanding with new scale to look at the possibility of replacing its coal boilers with SMA ours among other things.
This comes on the heels of Bulgaria committing to stop using coal for electricity generation between 2037 and 2040 <unk>.
New skills <unk> would produce 77 megawatts of energy to be built impacts of four six or 12 with plans to possibly to deploy the <unk> at current coal fired power plant sites.
On the subject of new scale, they announced on December 14th 2021 definitive business combination agreement with Spring Valley acquisition Corporation Nasdaq SP.
Upon the closing of the business combination new scale will become a publicly traded entity under the new ticker symbol SME new skill is majority owned by Fluor nicely MLR and GSE has been intimately working with new scale for the past decade.
We are excited about new scale, becoming a public company and recommend GSE investors to review their website and their investor materials to learn more about the SME SME market.
In Romania, the country's prime Minister recently announced support for the acceleration of certain projects to implement SMS part of creating Romania energy independence. This is in accordance with the use vision of reducing carbon dioxide emissions in the UK a push for <unk> has gone into overdrive as Rolls Royce recently gained the support of the British government to build a fleet of many.
Sure reactors Prime Minister Boris Johnson as recently announced he is all in on nuclear for the U K.
Moving to the United States. The Biden administration has laid the initial groundwork with a bipartisan bill that was signed into law in November .
The law included several billion dollars, specifically allocated to the nuclear industry with a focus on investing for maintenance efforts at existing nuclear facilities.
So provided funds to accelerate the advancement of next generation nuclear reactor technologies, including <unk>. We believe the dollars from this law are starting to make their way into the economy, but we're also appreciative of the U S government recognizing that upkeep of the current nuclear fleet is of the utmost importance, while bridging efforts to the next generation of nuclear facilities.
Nuclear power currently provides 20% of the nation's power and over 50% of the nation's 100% carbon free electricity.
As a result, the Biden administration has identified the current fleet of 93 reactors as a vital resource to achieve net zero emissions economy wide by 2050.
The U S Department of Energy recently released a notice of intent and request for information on the implementation of the bipartisan infrastructure laws $6 billion of funding for civil nuclear credit program.
The nuclear credit program supports the continued operation of U S nuclear reactors, the nation's largest source of clean power, both NOI and RFID are critical first steps to help avoid premature retirements of nuclear reactors across the country preserving carbon free power generation at scale for the future, while securing thousands of good paying clean energy jobs.
The nuclear credit program of <unk>, Most recently announced program to support the President's clean energy goals and ensure the communities across the country continue to see the benefits of sustainable energy infrastructure, commenting on this nuclear critical program Secretary of energy, Jennifer Granholm stated U S nuclear power plants or east.
Central to achieving president <unk> climate goals and is committed to keeping 100% clean electricity flowing in preventing premature closures.
The bipartisan infrastructure makes us all possible by allowing us to leverage our existing clean energy infrastructure strengthen our energy security and protect U S jobs Doa is facilitating the development of next generation technologies that can ultimately lower emissions and bolter bolster the clean energy workforce, while the bite administration.
Tried to pass the build back better Bill, which has stalled in Congress. There is very strong possibility that portions of it are a condensed version of the Bill gets passed with many of the original spending for nuclear energy remaining in the Bill.
Taking a deeper look at the bill it called for additional funds to keep current nuclear reactors going the house passed version of the build back better would provide between 20 and $25 billion in subsidies to existing reactors alone.
The obvious common factor with the bipartisan law and the build back better Bill is the acknowledgment that in order to cut greenhouse gas emissions nuclear must be a large component of the energy mix to achieve this goal. This is quite significant the only way to get there is to keep the existing nuclear fleet operating and continue and invest in itself to extend plan.
Operating lifetimes and produce more power from those assets over time to quote David Brown constellation Energy Senior Vice President of Federal Government Affairs and public policy.
50% of clean energy in the country comes out of nuclear units, we can't afford to lose them are going to come close to meeting the administration goals.
Constellation is an important company in the nuclear industry operating 22 reactors.
As all of the above makeup bundling clear there is tremendous and broad <unk>.
Positive momentum for the nuclear power industry across the political spectrum and across the globe.
Energy security zero carbon grid and scalable sustainable growth of zero carbon is now top of mind across the globe as a provider of specialized services and technology to industry, We believe GSE as well positioned as a result of all these trends now.
Now, let's dive into some of the key events GSE experienced in the fourth quarter, which was our strongest quarter for new orders since the onset of the pandemic over two years ago.
Overall, the fourth quarter produced another solid quarter at demonstrated that the business has stabilized with significant year over year improvements in orders more importantly, though the industry has showed signs of renewed strength, especially in the second half of 2021, where GSE experienced a big increase in new orders for the fiscal year.
Our total orders increased 25% to $56 5 million in the fourth quarter.
Loan they climbed by 128% to nearly $18 million with strong gains both from the performance engineering, and especially the workforce solutions segment, which shows that our customers are feeling more comfortable to having more employees on site to fulfill necessary maintenance and upgrades I'll get into further detail on both divisions in a few moments.
Although new water levels are not yet a pre COVID-19 levels. We are very pleased to be trending in the right direction, especially with the acceleration in the second half of 2021 and the new orders awarded in the fourth quarter created great momentum for us headed into 2022, while we continue to see some lingering impact from the pandemic for sure the fourth quarter.
It's clearly demonstrate that our customers are starting to emerge from the pandemic and prepared to catch up on any work delayed as a result, the good news is the GSE is in a very strong position to competitively bid for business, especially now that we've aligned the business and improved our capital structure, which we'll discuss later in our presentation.
One things for certain two key catalysts are still at the forefront for the nuclear industry the need for a stable and secure energy supply and de carbonization of the power sector. Both remain important catalysts for the power industry and are only going to gain momentum as we have recently seen due to higher energy cost and geopolitical issues, causing energy security concerns.
Well energy security is the hot topic of the day as I mentioned earlier in my comments. The focus on de Carbonization is also very relevant issue and we're seeing many more opportunities from company seeking help in finding interesting pathways to achieve net zero carbon emissions from operations. A perfect example of this was during the fourth quarter, when we announced a new car.
Track with Talon energy in Pennsylvania to support development of its subsidiary Cumulus Datas flagship Susquehanna Hyperscale data Center campus.
<unk> DP Engineering group GSE solutions company, a long time talent energy engineer of choice service provider is part of a multifaceted multi company team supporting the project initiative Talion energy is developing a crypto currency mining facility in data center on the campus, which is adjacent to the Susquehanna steam electric station.
<unk> power plant in solid sale in township.
And it will be powered by nuclear power plant there.
Cumulus is rapidly developing the Susquehanna Hyperscale data center campus on undeveloped land next just next to the nuclear power plant and will leverage the carbon free power generated theyre needing a robust solution up and running quickly and safely Cumulus tapped GSE DP engineering already serving the station is an EOC engineering of choice provider to <unk>.
<unk> design modifications to dress the connection of new transmission lines into existing 230, Kilovolt and 500 Kilovolt lines currently serving the main switch charts at the facility.
GSE is very proud to help with the design of bits for structure to bring nuclear as the carbon free energy source to the new data center, it's exciting to be.
Part of such an innovative.
Innovative in Denver, and we look forward to further opportunities to advance carbon free power applications such as these.
We fully expect to see other nuclear operators pursue similar opportunities and you can be sure GSE will highlight our well earned expertise as we pursue these business opportunities.
Now, let's review a bit into each operating segment.
Engineering performance.
We saw revenue decreased slightly sequentially from the third quarter when compared to year ago orders improved significantly during the fourth quarter rising 69% to $7 4 million when compared to the same quarter a year ago. This increase was attributable to several new contract wins, including a very sizable contract from a large company in the nuclear industry.
Looking further into the engineering performance division are choosing our consulting and DP units performed well compared to the fourth quarter a year ago as more customers are investing in the essential services that we provide to the industry.
Our core GSE performance operations, which is comprised of sales and upgrades of simulator solutions for nuclear natural adjacencies, while slightly less than last year in the third quarter is still delivered solid results.
More importantly, though division received a steady flow of sizeable orders throughout the quarter, resulting in the increase in fourth quarter orders for engineering overall.
I'd like to highlight the GSE Asia currently only a minor part of the business is seeing a comeback as we experienced sequential improvement in orders and a large jump from year ago. This too is an important metric to note as it shows some of our customers are resuming maintenance activities at nuclear facilities and catching up to be current on project work and potentially could be a nice growth.
The battle is for us moving forward.
While the division is still in the midst of recovering from the pandemic. We are seeing customers start to put work more work out to bid and inquire specifically of our unique solutions. There has been a large uptick in the opportunities pipeline as a result of this increased activity.
Cause of this we have reason to be confident that the industry is emerging from the pandemic related slowdown in spend and do you expect additional business within this division over the longer term.
Our pipeline of opportunities for overall for the segment has clearly improved so our focus is working diligently with our customers and potential customers to convert these bids into orders and subsequently revenue as experienced in the quarter with the new key orders received.
Moving onto our cloud based software as a service solutions for SaaS solutions.
I've mentioned in the past while this is technically categorized under our engineering performance Division is a very exciting and unique component of our business and one which I believe warrants zoom conversation.
Revenue from our software solutions was $2 $4 million for the quarter compared to <unk> eight.
<unk> 8 million for the third quarter. Most of this revenue is comprised of SaaS based subscription revenue, which is recurring in nature. While the remainder was for one time licenses and annual maintenance associated with those licenses.
Software revenue was $4 $8 million for the for the year up roughly 23% compared to the prior year. This is fantastic absolutely fantastic. It's important to note that the mix of the software license revenue shifted meaningfully and that the software revenue now is primarily SaaS base, which increased 80% year over year. This was.
As an indicator of long term growth and success with this business as it is recurring and highly sticky in nature with automatic annual adjustments in the account for inflation plus margin to the company.
We continue to be excited about these high value high margin software solutions, which have demonstrated the potential for continued above average growth rates, while bringing strong predictability to the software license business in the company.
Im extremely pleased with the progress. This division has built for GSE currently it represents almost 9% of our total revenues and we are focused on growing from there.
And our overall revenue mix aside from the recurring nature of software software provides its also a very high gross margin typically an 80% to 90% for GSC GSA.
GSE recognizes revenue on a ratable basis for SaaS software quarterly in the life over the lifetime of the contract.
We made a significant push to convert our perpetual licenses to term licenses with our customer as well as capture new customers delivering the SaaS solution via the cloud.
We've been successful in converting several of our clients to the SaaS base license agreements and are in discussions with several more clients and prospects about onboarding them with the solutions, we're delighted with our growth in this area and look forward to continuing the transformation to make this segment a larger part of our business.
Now moving to workforce solutions, which was definitely the highlight of the fourth quarter as more of our customers are feeling comfortable to having employees back on site.
Sales were $7 million in the fourth quarter alone, which was a 38% increase when compared to $5 1 million from the fourth quarter a year ago orders were also strong coming in at $10 6 million for the fourth quarter alone, which was a 202% increase when compared to $3 5 million from the fourth quarter a year ago. The increase is really demonstrate how our customers are.
Now feeling more comfortable with having workers on prem and committed to making sure their facilities received the required upgrades and maintenance that they may have delayed. This is great news for our business and bodes well for the industry is moving beyond the pandemic orders were also significantly higher on a sequential basis and we believe that this division has obviously turned the corner for the better.
Getting a bit more specific the division received four key orders from our customers with one being very sizable order with a major utility company and three medium sized orders two of which are with major utility companies and the other with the construction services company the recovery is broad and upscale.
To summarize I'm very proud of our team and the results produced in the fourth quarter and the fiscal year, we're able to demonstrate a turnaround in the business and been tenacious in winning new orders. Our backlog has increased as a result of these efforts while we have much further to do we continue to see signs of the industry improving and we do believe that the company is in a strong position to capture additional.
<unk> orders as the pandemic related constraints on spending are coming to an end.
In the meantime, the company has been aligned to the market opportunities and our diversified business mix that we purposely built over the past few years has proven resilient and successful. We believe it has positioned the company to broadly benefit from the macro trends that are highlighted that bode very well for gse's future.
We're in the central part of the power industry ecosystem, and our clients rely on us to keep their assets up and running while creating a highly efficient and safe environment.
The strong reputation we have in industry and the relationships we made with our.
We maintain with our customers and the value added engineering workforce solutions and software technology, we offered industry should position us well to beat out the competition is more business flows into the vendor ecosystem for nuclear and broader zero carbon power generation.
As the industry continues to develop a resilient grid that will advance the goal of Decarbonize Carbonization GSE is at the forefront of providing such solutions and ready to partner with the power industry to achieve these goals.
In addition industry tailwind is our extremely strong for GSE as it is becoming quickly apparent that two team net zero carbon emissions and have a stable grid with the energy independence nuclear must be included and in fact must become more of a critical part of the world power mix.
Industry news items that previous I previously shared are just a touch of the surface as the renewed activities in nuclear right now and they make me feel extremely confident about the future opportunities for GSE due to our unique offerings, which are at the forefront of making these nuclear power generation technology, some plants operate and run safely produce more power.
And operate efficiently from those assets over time, I'll now turn the call over to Emmett Pepe GSE CFO , who will review the fourth quarter financial results Emmett. Please proceed.
Thank you Tal.
But the numbers highlighted in detail in the press release, let me focus my comments on a few areas and provide.
Added color, where I can.
Highlighted a few of our key new orders in Q4, which led to our highest quarterly total since Q1 of 2020.
Workforce solutions led the charge with their highest quarterly total since Q1 of 2020.
Revenue during the fourth quarter of 2021 was $13 9 million increase of nine 6% compared to $12 7 million in the fourth quarter of 2020.
Year over year improvement was driven by a 38% increase in the company's workforce solutions segment.
Demonstrating that our customers are moving back to do more work on site revenue for fiscal 2021 in total was $55 2 million up four 2% decrease when compared to $57 6 million in fiscal 2020.
Due to several significant projects that ended in the prior year and a slower bounce back from the Covid pandemic that expected, particularly in the first half of 'twenty one.
Engineering performance revenues were $6 8 million in the fourth quarter of 2021 compared to $7 4 million in the third quarter of 2021.
And $7 6 million in the year ago fourth quarter.
Sequential and year over year change was due to lower orders within the stimulator part of our business, which can be cyclical in nature.
However, we have seen this business segment pick up in the second half of 2021 as orders increased 63% over the first half of 2021.
For the year Engineering performance revenue was $28 1 million in 2021, compared with $32 8 million in 2020.
The year over year decrease was primarily due to significant projects that were completed in the prior fiscal year.
Workforce solutions revenue increased approximately 38, 1% to $7 million in the fourth quarter up from $5 1 million in the fourth quarter of 2020, and slightly decrease with compared to $7 3 million in the third quarter of 2021.
For the fiscal year workforce solutions revenue was $27 million in 2021 compared to $24 8 million in 2020, an increase of eight 9%.
The year over year increase in revenue was primarily due to new significant customer obtained in the first quarter of 2021 and due to an overall increase of activity due to subsiding of the COVID-19 pandemic.
Gross profit in the fourth quarter of 2021 was $3 1 million or approximately 22% of revenue compared to gross profit of $3 8 million or 29, 9% of revenue in the fourth quarter of 2020, and $3 2 million or 21, 7% of revenue in the third quarter of 2021.
Gross margin was down primarily due to project mix as our workforce solutions segment contributed a larger portion of revenue and our core GSE performance business being down slightly which is typically our highest margin business. While the gross profits can be can fluctuate due to project mix, we do anticipate gross profit improve.
Improvement over time.
Also I'd like to point out that while workforce solutions dominated the fourth quarter gross profit for that division was 16, 1% nearly 400 basis points above levels reported the same quarter last year, we had some lower margin projects in prior periods and Q4 margins are usually better since taxes paid for employees.
Are more front end loaded in the year.
Operating expenses, which excludes restructuring and impairment charges and amortization expense in the fourth quarter of 2021 were $4 6 million compared to $3 4 million in the third quarter of 2021.
Fourth quarter of 2020.
The large increase in Q4 2021 as do roughly to 800000 noncash entry for an allowance for doubtful accounts related to a customer contract with our GSC Beijing entity, which we will continue to pursue billing and collections on.
For 2021 operating expenses were approximately $15 5 million compared to $16 $5 million in 2020, and the <unk> was due to <unk>.
Ongoing tight expense controls implemented in 2021.
We continue to closely monitor operating expenses and expect them to be in line with the prior guidance of three $5 million to $4 million per quarter.
Same as many other companies in our industry.
And across the economy.
Higher expenses for everything from corporate insurance and other inflationary pressures. Despite these pressures we continue to track to our historical run rate operating expense.
The net loss in the fourth quarter of 2021 was $1 9 million or <unk> <unk> per basic and diluted share compared to a loss of $1 5 million or seven per basic and diluted share in Q4 of 2020.
Net income for fiscal 2021 was $10 6 million or <unk> 51 per basic and diluted share compared to net loss of $10 5 million in fiscal 2020.
The positive income reported in fiscal 'twenty, one was from the recording of the forgiveness of the PPP loans as well as income recorded from our employee retention credits.
Adjusted EBITDA was a loss of $1 1 million in the fourth quarter of 2021, a decrease from.
Point 1 million recorded in third quarter of 2021, and $1 1 million recorded in the fourth quarter of 2020.
As mentioned earlier, we booked roughly 800 to 800000 in Q4 'twenty one for the allowance for doubtful accounts.
The company's backlog improved during the fourth quarter to $41 3 million up from $37 5 million at the end of the third quarter 2021.
<unk> increase in the backlog was primarily from our workforce solutions Division, which was $9 5 million at the end of the fourth quarter up from $6 million at the end of Q3.
Performance Engineering segment backlog was fairly stable at $31 8 million.
These levels in the backlog.
Revealed continued post pandemic activity amongst our clients. This highlights the improvement in our existing contracts and combined with the increase in new orders in the quarter put GSE in a solid position heading into 2022.
As we have stabilized the business.
Our balance sheet has benefited we exited fourth quarter with $3 6 billion in cash and $1 8 billion that remained on our credit facility.
Which was lower during the quarter by 250000.
That said as many of you are aware subsequent to the quarter and year end. The company entered into an agreement for a convertible debenture, which will greatly improve the company's liquidity. We are pleased to enter into this financing agreement.
We couldnt bar on our own line of credit and as seen in recent quarters had to repay the line.
Given the nature of our business and the timing of contracts.
Poor line of credit was not offering the company any real financial flexibility.
In addition to eliminating the prior line of credit with restrictive covenants with the new financing we were able to file our 10-K without a going concern. This is great news for the company.
Well I can't get into specific updated figures I will express, but our cash position is currently much higher the company is focused on driving new orders and opportunities to improve its financial results. In addition, we have received $1 1 million.
<unk> refunds due to us during the first quarter, which has also enhanced our capital structure and we anticipate the additional $3 million in ERC refunds still outstanding.
As the business has been right sized and our operating expenses have been tightly manage we believe we have positioned ourselves for stability renewed growth in the coming periods.
I'll now turn the conversation back to Kyle.
Alright, thanks, so much.
To summarize we believe the effects of the pandemic on our industry are largely behind us and as seen in the improvements in new orders both for the fiscal year and more recently in the back half of 2021, especially the $18 million in new orders booked in the fourth quarter. Our team is highly focused on improving order flow and I believe we're in a solid position to capitalize on helping our customers up.
Grade maintain their existing fleet of facilities.
It really bodes well for GSE and the near and mid term.
Looking to the longer term, we see an interesting dynamic unfold on a global basis on two major fronts that we believe will act as strong tailwind for services GSC provides one of the focus on de carbonization.
But the other is the recent rise in energy prices caused by geopolitical issues combined with a shortage in new power production.
The recent rise in energy prices have caused.
And will cause major inflationary issues that only add more pressure to global leaders to reexamine, the energy strategies and address them for the long term if I may it really this perfect storm, everyone needs more energy and many want it to be clean and zero carbon, but the two together and the only answers to embrace nuclear energy.
So as I have discussed earlier were soaring energy prices and desire for countries and companies to seek consistent means of energy sources, they've put a large focus on nuclear and this has.
And we've seen this with the continued price increases and uranium it's our belief that the damage is already done and the realization of implementation of <unk> are being put to the top of the list of priorities and timelines and making them a reality.
<unk> been moved up a significant amount as a result of what's going on globally right now.
Before we open the call for questions I'd like to publicly welcome Thomas <unk> as our newest board member for GSE, Tom brings to GSE over 40 years of experience in the nuclear power industry and currently serves as the nuclear Safety Review Board chairperson at several Exelon site as well as subcommittee chair for the <unk>.
<unk> Southern company, an energy northwest.
We are extremely appreciative of Tom joining the board and believe his deep expertise will offer the company tremendous insight and counsel to myself and other board members and to the company Tom <unk>.
Heartily welcome you on board.
I'd like to conclude that we believe the company has worked hard in the past year to stabilize our operations strengthened our balance sheet and continuing to work on pursuing newer contracts for the industry as it resumes upgrades and maintenance in their facilities and workforce bidding in recent months continues to improve many of our customers are coming back to the table and the need for upgrades and upbeat server.
While the timing on this business is still hard to pinpoint we believe that we can see the business in front of us and as much and then as a matter of win not how or if.
Given our efforts in 2021, GSE is well positioned to win our fair share of opportunities and with a leaner cost structure and stronger balance sheet, given our very unique situation as a heavily tech enabled provider of essential services to the de carbonization of the power sector in nuclear power industry, we remain very confident in our opportunity to create substantial long term.
<unk>.
With that said operator, please open the floor for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad if.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from Don Burgess with Burgess capital. Please go ahead.
Thank you once.
Revenues return to.
Pre COVID-19 levels.
Gross profit margins do you expect any differences up or down too.
Where they were pre Covid are you specifically are you able to pass on cost increases where you have one.
Yeah, I'll speak qualitatively to that and perhaps semi can chime in quantitatively. If you look at pre COVID-19 margins, they're obviously higher than.
Stay where they are currently and that largely reflected the mix of business.
With the.
Snapback and workforce solutions business.
Which has come back really strong has really been a highlight in the second half of the year, particularly in Q4.
Because it's a lower margin business than our performance solutions business, which is still.
Climbing back, but not such a rapid pace that of course drove down our overall gross margins. So if we look out ahead of us returning to pre coronavirus.
Uh huh.
Environment.
That's where we probably see margins overall climb back to approaching what they were at that time.
Emmett do you have any other.
Comments there.
I think just to add I mean, I think some of it you touched upon a lot of our.
We've been working very hard to.
Increased rates from an inflationary perspective software.
Software agreements we have.
CPI plus.
Language. So so so all that together.
For some margins for us as well.
Thank you and my other question is on the SaaS business is interesting we know it's small.
But his impressive growth and can you say anything more about the potential of that business how much upside do you see for that and what are you doing the development.
Yeah, I mean look.
It's a great question Don when you look at when we came in our company out of.
Business practice of giving way it's technology in order to win service work and that was obviously upside down and with our backgrounds. We worked to change that professionally package and license the solutions and we've gone from de minimus two two.
<unk> two years.
Really meaningful growth year over year.
<unk> was a big growth year above 2019, and again 2021 of the great growth year and the composition of that growth was even higher quality than in 2020.
So the potential is.
We don't talk futures, but you can you know.
You look at the past two years performance in.
We are focused on continuing that we're introducing new product we've had a great press release around <unk>.
Recently around our thermal performance monitoring solution, which is a software technology solution.
Really leveraging our know how and how to get these plants to operate legally accurately report the amount of power they are putting onto the grid recovering the costs.
That power, so finding millions of dollars loose change and the couch monitoring it real time on an ongoing basis to ensure peak peak operations.
And the like so that.
That was new product net new came out over the last year and it's doing great really feel we're at an inflection point.
So.
We're really excited about the growth of this business and really what it means for the company as we move forward.
Thank you and best of luck.
Yes, Thanks, Tom.
Again, if you have a question. Please press Star then one please standby as we poll for questions.
Okay. Gary This is Adam loan center I'll jump in with a couple of questions for the management team.
Calling them regarding the bipartisan infrastructure and jobs Bill that passed in November are you starting to see some effects from that the money is obviously there how long does it take to make its way into the economy.
Now.
Industry is certainly very excited about the fact that there is.
National recognition from us at the level to the top of the U S government for investing in their current infrastructure to make it more robust produce more power and extend the lifetime of these plants.
So.
With the formation of the.
Groups that they're seeking information around how best to disperse these $9 million of funds.
I don't think they gave a timeline, but I would expect over the next year, we're going to see that money starts to flow and the.
Industries.
Really super excited about it because it finally is starting to level the playing field around subsidies that wind and solar is to get that really turned the market upside down and what's.
What's hurting the very goals of de Carbonization as a result, so now that there's this broader enlightenment around the purchase zero carbon.
With actual funding and intellectual thought and business thought put into it industries really feel things have turned the corner.
Maybe this one's a little bit more for Emmett I know it would an investor asked me it wouldn't be on the call today, but said can you describe how important the financing conducted in February to the company.
But yes look.
As I stated.
Earlier.
It's tremendous.
The a lot of credit we had was restrictive we had no capacity we have.
Restrictive covenants that that really hampered us.
Contributed heavily to having a going concern from an accounting perspective, so being able to remove that opens up a lot of.
The flexibility for the company and then having some.
Rightsize it corrected balance sheet.
This has us very well for what were opened as a good solid year.
Balance sheet flexibility is important.
And one more opposed to you both.
SMS ours are on their way up new skills going public.
Well.
Maybe discuss a little bit about your work on <unk> and how it's upfront and what kind of revenue opportunity per construction that could be for GSE.
Yes, well look we've been partnered with.
New scale for over a decade, providing the technology that they've used to simulate their design basis and get that initial licensing.
From the NRC in record time, they have an amazingly capable staff.
And many GSA alarms that work there as well as at the stack Theres a GSE alum.
Folks that we now have known for a long time that are driving this effort. So it's a very small world. This very tight relationship with new scale.
And we've been generating revenue.
The past decade and.
They get their first plant up and running by the end of this decade really gives you a sense of the lead time.
Our technology can be used very early upfront to generate revenue, we see that with 81, thousands with Westinghouse as well.
And the closer they get to construction the closer on any of these plants.
The more relevant our engineering services and workforce development.
Workforce solutions groups become as they look to debottleneck their own ability to conduct work.
Our solutions can be brought to bear to look at.
Yeah.
Pre inspection.
Pre service thermal performance in studies, well, that's where our engineering service can come in there so as they build these plants they are built to be optimally.
Performing and then as you get close to actual operations pre service inspection and testing things that were really specialize on so I won't put you know.
What does it mean for construction project dollars. It can mean a lot.
And.
The important thing is that our company is entirely relevant to the whole lifecycle of these plants and once the plant up and running the entire companies.
Our portfolio is highly relevant but it's as we've said it's been relevant.
For a decade in advance.
Of of where we are right now with new scale. So.
We just have a really neat portfolio of capabilities that we purpose built over the last five years six years as we look to bolt on really need specialty engineering services and workforce solutions.
Great. Thanks, Kyle I think that's all the questions. We haven't you could proceed to conclude.
Yeah, well, thanks very much.
Well look I'd like to thank everyone for joining us on call today, but I thought it important to give the context of where we are in the nuclear power industry and all the very exciting things that are occurring and you see that flowing through to our results. So we're really excited by that we appreciate your time and interest in GSE and.
We're excited about what lays ahead of US I will note that next week, we are presenting at the Lytham Partners Spring 2022 Investor Conference next week April 7th.
And hopefully a number of you will join and we can get into further discussions Aric do you have any questions don't hesitate to reach out to Adam from Lytham partners and we'd be happy to schedule a follow up call or just call me directly. Thanks, again, everyone and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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