Q1 2024 GSE Systems Inc Earnings Call
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Operator: Good day, and welcome to the GSE Systems first quarter fiscal year 2024 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Adam Lowensteiner, Vice President of Litham Partners. Please go ahead.
Speaker Change: Good day and welcome to the G. S E Systems' first quarter fiscal year 2024 financial results Conference call.
Speaker Change: All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
Adam Lowenstein: I would now like to turn the conference over to Adam low and Steiner Vice President of Lytham Partners. Please go ahead.
Adam P. Lowensteiner: Thank you, Danielle, and good afternoon, everyone. And thank you all for joining us today to review the financial results for GSE Systems' first quarter 2024 for the period ended March 31st, 2024. With us on the call representing the company today are Ravi Khanna, President and CEO of GSE Systems, and Emmett Pepe, Chief Financial Officer of GSE Systems. Before we begin, I would like to remind everyone that statements made during the course of this call may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended in Section 21E of the Securities Act of 1934.
Speaker Change: Thank you Danielle and good afternoon, everyone and thank you all for joining us today to review the financial results for GSE systems first quarter 2024 for the period ended March 31 2024.
Rob <unk>: With us on the call representing the company today are Rob <unk>, President and CEO of GSE systems and Pepe.
Rob <unk>: Financial officer of GSE systems before we begin I would like to remind everyone that statements made during the course of this call may be considered forward looking statements within the meaning of section 27 of the Securities Act of 1933 as amended and section 21 E of the Securities Act of 1034. These statements reflect current expectations concerning future events and results.
Adam P. Lowensteiner: 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 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 and uncertainties and other important factors that could cause actual performance or achievements to be materially different from those projected.
Rob <unk>: 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 for future performance and are subject to risks and uncertainties and other important factors that could cause actual performance or achievements.
Rob <unk>: To be materially different from those projected.
Adam P. Lowensteiner: For a 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 section. GSE does not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
GSE: 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 section.
GSE: 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 and adjusted EPS, which are not measures of financial performance under a general generally accepted accounting principles or GAAP.
Adam P. Lowensteiner: To achieve this goal, management may be referred to EBITDA, adjusted EBITDA, adjusted net income, and adjusted EPS, which are not measures of financial performance under generally accepted accounting principles or GAAP. However, 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 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 superior to 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 company's earnings release.
GSE: Management believes that these non-GAAP figures. In addition to other GAAP measures provide meaningful supplemental information regarding the companys operational performance 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 superior to any measure of performance.
GSE: Prepared in accordance with GAAP.
GSE: A reconciliation of non-GAAP measures to the most directly comparable GAAP measures in accordance with SEC regulation G can be found in the company's earnings release.
Adam P. Lowensteiner: With that, I'd like now to turn over the call to Mr. Ravi Khanna, President and Chief Executive Officer of GSE Solutions. Ravi, please proceed. Thank you, Adam.
Ravi Connor: With that I'd like to turn over the call to Mr. Ravi Connor, President and Chief Executive Officer of GSE Suite solutions Ravi. Please proceed.
Ravi Khanna: Thank you, Adam. I'd like to welcome everyone to GSE's first quarter 2024 financial results conference call and my first conference call as the recently appointed president and CEO of GSE Solutions. Earlier today, we issued a press release detailing our financial results. Hopefully, you had a chance to review this news release, but if not, a copy can be found on our website at www.gses.com under the news section. To lay out the agenda for today's call, I will start with a brief update on the industry, discuss highlights of our quarterly results, and outline some of my goals and initiatives as the new CEO. Emmett will then review the financial results and will conclude with a Q&A session.
Ravi Connor: Thank you Adam I'd like to welcome everyone to GSE is first quarter 2024 financial results Conference call and my first conference call as recently appointed President and CEO of GSE solutions.
Speaker Change: Earlier today, we issued a press release detailing our financial results hopefully you had the chance to review this news release, but if not a copy can be found on our website at www Dot <unk> dot.
Speaker Change: Dot com under the news section.
Adam Lowenstein: The agenda for today's call I will start with a brief update on the industry discuss highlights of our quarterly results and outlined some of my goals and initiatives as the new CEO.
Adam Lowenstein: And that will then review the financial results and we'll conclude with a Q&A session.
Ravi Khanna: Before I begin my formal comments, I would personally and sincerely thank my predecessor, Kyle Loudermilk, for leading GSE to this point and transitioning when the company is in a solid position to move forward. Kyle has been an incredible resource during this process and a great mentor to me personally, our leadership team, and so many of my colleagues. I wish him all the best on his future endeavors.
Adam Lowenstein: Before I begin my formal comments I would like to personally and sincerely. Thank my predecessor, Hi, Loudermilk for leading GAC to this point and transitioning when the company is in a solid position to move forward.
Kyle J. Loudermilk: <unk> has been an incredible resource during this process and a great mentor to me personally our leadership team and so many of my colleagues I wish him all the best on his future endeavors.
Ravi Khanna: A little bit about myself: prior to my appointment as President and CEO, I was GSE's Senior Vice President of our Systems and Simulation business, a critical contributor to GSE's operations and role in the industry. I joined GSE in 2016, and I have clock in over 20 years of experience in the field of engineering services and software technology solutions. I hold a Bachelor of Science in Chemical Engineering from the University of Maryland, a Master of Science in Computer Science from John Hopkins University, and an MBA from the University of California, San Diego.
Kyle J. Loudermilk: A little bit about myself prior to my appointment as President and CEO I will Gse's senior Vice President of our systems and stimulation business, a critical contributor to Gse's operations and role in the industry.
Kyle J. Loudermilk: I joined <unk> in 2016, and I'm clocking in over 20 years of experience in the field of engineering services and software technology solutions I hold the bathrooms. The science in chemical engineering from the University of Maryland, a masters in computer Science from John Hopkins University, and an MBA from the University of California, San Diego.
Ravi Khanna: So I come to the C-suite armed with a diverse background and education that should meet the needs of GSE, along with boots-on-the-ground experience working within this company. I want to publicly congratulate and welcome Damian DeLongchamp as GSE's new Chief Operating Officer. Prior to being appointed COO, Damian was the Vice President of GSE's Engineering Program and Performance Business Unit. He has been with GSE since 2017 and brings over 20 years of utility experience both domestically and abroad.
Kyle J. Loudermilk: So I come to the C suite orange with a diverse background in education that should meet the needs of GSE, along with boots on the ground experience working within this company.
Ravi Khanna: He has deep experience in various roles within the nuclear energy industry and specializes in regulatory codes and compliance in plant improvement processes. Having worked alongside Damien, I can attest to him being instrumental in keeping GSE at the cutting edge of applied engineering and thought leadership in the industry, which is demonstrated by the key wins he continues to drive for the business. Congratulations, Damien, and I am looking forward to working with you in this new, exciting role.
I want to publicly congratulate and welcome Damian the long Sham as GSE as new Chief operating officer prior.
Kyle J. Loudermilk: Prior to being appointed CLO, Damian Wille, Vice President of Gse's Engineering program and performance business unit.
Kyle J. Loudermilk: Amy has been with GSE since 2017 and brings over 20 years of utility experience, both domestically and abroad. He has deep experience in various roles within the nuclear energy industry and specializes in regulatory codes and compliance and plant improvement processes having.
Amy: Having worked alongside Damian I can attest and being instrumental in keeping GSE at the cutting edge of applied engineering and thought leadership with the industry, which is demonstrated by the key wins he continues to drive for the business.
Speaker Change: Gratulation Damian and looking forward to working with you in this new exciting role.
Ravi Khanna: First, a brief update on the industry. The nuclear industry continues to gain momentum on a global basis. While this momentum is derived from the drive towards decarbonization goals, there are also several macro trends in the energy industry that favor nuclear energy. There's no doubting that we are currently in a new cycle of nuclear energy as the demand for power continues to rise at a record rate and rapid pace. Meeting the high demand for electricity is only going to grow from here as more electrification takes place, whether that's for hand-held devices, computers, automobiles, or even homes.
Speaker Change: First a brief update on the industry.
Speaker Change: The nuclear industry continues to gain momentum on a global basis. While this momentum is derived from drive towards decarbonization goals. There are also several macro trends in the energy industry that favor nuclear there's no doubting that we are currently in a new cycle of nuclear as the demand for power continues to rise at a record rate and rapid pace.
Speaker Change: Using the high demand for electricity is only going to grow from here as more electrification takes place whether that's for your handheld devices computers automobiles or even homes.
Ravi Khanna: Also affecting the demand for power are newer technologies that utilize data centers, and these high-computing environments are actually causing the rollout of many more of them as we speak, in order to keep in step with this demand. Technologies that leverage hosted services for cloud computing, artificial intelligence, also known as AI, among other things like electric vehicles and cryptocurrencies, all require a wealth of electricity, and demand is expected to keep rising as these technologies and platforms mature.
Speaker Change: Also affecting the demand for power our newer technologies that utilize the data centers and these high compute environments are actually causing the rollout of many more as we speak in order to keeping up with this demand technologies that leverage hosted services for cloud computing artificial intelligence also known as AI among other.
Speaker Change: Things like electric vehicles in crypto currencies, all require a wealth of electricity and demand is expected to keep rising as these technologies and platforms mature.
Ravi Khanna: Recently, Dominion Energy commented on these trends as data centers have become more of their electricity sales and revenue in recent years. Behind this trend isn't just connecting data centers to the grid; it is also seeing the size of each facility request, which is now at 60 to 90 megawatts, two to three times more than the usual 30 megawatts, which stems directly from new computer needs, like AI. And the demand is expected to keep increasing. As Diminan also cited, according to McKinty & Company, in the US alone, data center demand is expected to reach 35 gigawatts by 2030, up from 17 gigawatts in 2022.
Speaker Change: Recently Dominion Energy commented on these trends as data centers are becoming more of their electricity sales and revenue in recent years behind this trend isn't just connecting data centers to the grid.
Speaker Change: We're also seeing the size of each facility request, which is now at 60 to 90 megawatts two to three times more than the usual 30 megawatts, which stems directly from new computer needs like AI.
Speaker Change: And the demand is expected to keep increasing as Janine and also sided that according to Mckinsey <unk> company in the U S alone data center demand is expected to reach 35, Gigawatts by 2030 up from 17 Gigawatts in 2022.
Ravi Khanna: In order to power these massive data centers, nuclear power has become the only scalable and stable carbon-free power source option that can reliably be available 24-7. So the increase in demand for reliable, carbon-free power is definitely apparent, and nuclear power is that piece of the puzzle to meet these demands. But how will power companies keep up?
Speaker Change: In order to power. These massive datacenters nuclear power becomes the only scalable and stable carbon free power source option that can reliably be available 24 seven.
Speaker Change: So the increase in demand for reliable carbon free power is definitely apparent and nuclear is that piece of the puzzle to meet these demands.
But how will power companies keep up.
Ravi Khanna: As we've expressed in the past, we believe in the near term, power companies will continue to focus on the current fleet of nuclear facilities and make sure they stay open and are updated to operate for longer periods of time in an efficient and safe manner. The mindset of decommissioning facilities is in the past, and now operators and government officials are recognizing the value that the existing nuclear sites offer and are working on ways to keep them open for years to come in order to bridge the gap until the next generation of reactors are set forth, predominantly referred to as small modular reactors or SMRs.
Lisa Trust: As Lisa Trust in the past, we believe in the near term the power companies will continue to focus on the current fleet of nuclear facilities and making sure. They stay open and are updated to operate for longer periods of time in an efficient and safe manner then.
Lisa Trust: The mindset of decommissioning facilities is in the past and now operators and government officials are recognizing the value that the existing nuclear sites offer and are working on ways to keep them open for years to come in order to bridge. The gap until the next generation of reactors are set forth predominantly referred to a small margin.
Lisa Trust: <unk> reactors or SMS.
Ravi Khanna: Along these lines, I'd like to point out two recent items of news in the industry. First, was an announcement by PSEG, which recently announced that it has notified the NRC of its intention to pursue 20-year license renewals for its nuclear power plants located in South New Jersey.
Lisa Trust: Along these lines I would like to point out two recent items of news in the industry first wasn't announcements by PSEG, which recently announced that it has notified the NRC of its intention to pursue 20 year license renewals for its nuclear power plants located in South New Jersey <unk>.
Ravi Khanna: The facility's first unit has been operating since 1977, and the thrust of this renewal is heralded by the company and government officials as it employs over 1,600 people and provides New Jersey with nearly half of the state's electricity and 85% of the state's carbon-free generation. The second was the focus of a recent news article in Bloomberg Businessweek which focused on the revival of the nuclear industry in the United States by a company called Holtec International, which focuses on bringing the industry through the recognition of existing assets by restarting shuttered facilities in the near term and bridging them to the future with newer technologies and capabilities like SMR. Holtec has its own SMR design, which is currently being reviewed by the NRC, and the company is planning to commission one at one of its sites by 2030.
Lisa Trust: The facility's first unit has been the operating since $19 77, and the thrust of this renewals heralded by the company and government officials as it employs over 600 people and provides new jersey with nearly half of the state's electricity and 85% of the state's carbon free generation.
Lisa Trust: The second was the focus of a recent article in Bloomberg business week, which focus on the revival of the nuclear industry in the United States by a company called whole Tech International which focuses on bringing the industry through recognition of existing assets by restarting shuttered facilities in the near.
Lisa Trust: Term and bridging them to the future with newer technologies and capabilities like SMS whole Tech has its own <unk> design, which is currently being reviewed by the NRC and the company is planning to commission them at one of their sites by 2030.
Ravi Khanna: This is exciting news for the industry, and this story, along with the news from PSEG, fits very well into the GSE narrative of the past few years. While SMRs are still a few years away, they are the wave of the future and will be the next generation of reactors built. While our current focus is on the existing fleet of reactors, GSE is well positioned to partner with and capitalize on these new technologies as they emerge.
Lisa Trust: This is exciting news for the industry and this story along with the news from PSEG fit very well into the GSE narrative of the past few years.
Speaker Change: Wireless tomorrow are still a few years away. They are the wave of the future and will be the next generation of reactors built.
Speaker Change: While our current focus is on the existing fleet of reactors.
Speaker Change: <unk> is well positioned to partner and capitalize on these new technologies as they emerge.
Ravi Khanna: That said, I'd be remiss if I didn't take the time to recognize our own initiatives with an order that we will soon announce with an SMR provider in the United Kingdom. Under this agreement, GSE will supply our customers' SMR programs with GSE's most recent simulation technology platform to help them construct their own high-fidelity simulators. These simulators will be used to evaluate and advance plant designs with various digital control systems and technology stacks to enable future virtual commissioning of hard and soft controls through the entire plant development and software development DevOps lifecycle.
Speaker Change: That said I'd be remiss, if I didn't take the time to recognize our own initiatives with an order that we will sooner now with an SMA provider in the United Kingdom.
Speaker Change: Under this agreement GSE will supply our customers' SMA program with Gse's. Most recent stimulation technology platform to help them construct their own high fidelity simulators.
Speaker Change: These simulators will be used to evaluate and advance plant designs with various digital control systems and technology stacks to enable future virtual commissioning of hard and soft controls through the entire plant development and software development Dev ops lifecycle.
Ravi Khanna: As SMRs evolve, be well assured that GSE is prepared to work with many SMR developers in the marketplace and assist them with various engineering and software services. As experienced with this key win in the SMR space, our partner was attracted to GSE for our technology stack, diverse expertise, and positioning to provide value in a very seamless and rapid manner. SMRs are becoming a critical area of focus for the nuclear power industry, and GSE is well-positioned to be a leading provider of engineering and software services and capture market opportunities as they mature in service.
Speaker Change: <unk> of all be well assure that gse's prepared to work with many of the more developers in the marketplace and our system in various engineering and software services.
Speaker Change: As experienced with its key win in the <unk> space. Our partner was attracted to GSE for our technology stack diverse expertise and positioning to provide value in a very seamless and rapid manner.
Speaker Change: <unk> are becoming a critical area of focus for the nuclear power industry, and GSE is well positioned to be leading to be a leading provider of engineering and software services and capture market opportunities as they mature and surface that said the company is also in a good position to continue to capitalize on maintenance and upgrade opportunities.
Ravi Khanna: That said, the company is also in a good position to continue to capitalize on maintenance and upgrade opportunities within the existing nuclear fleet here in the U.S. and internationally. Going forward, a major part of our focus will be on the existing fleet of nuclear sites and assisting the operators with making sure they can operate in the most efficient and safe manner by leveraging all of GSE has to offer through simulation technology, design engineering services, and engineering programs. Now for some perspective on GSE's business in Q1 of fiscal year 2024. The first quarter was a solid quarter with regard to new orders and revenue.
Speaker Change: Within the existing nuclear fleet here in the U S and internationally.
Going forward a major part of our focus will be on the existing fleet of nuclear sites and assisting the operators with making sure that they can operate in the most efficient and safe manner through leveraging all of GSE has to offer through stimulation technology design engineering services and engineering programs.
Ravi Khanna: As described a few weeks ago on the fourth quarter conference call, we experienced some key contract wins in the first quarter that were originally supposed to close in the fourth quarter of 2023. As a result, new orders in the first quarter were $14.6 million, up from $7.3 million in the fourth quarter but lower from the first quarter one year ago, where we also experienced some delays from the fourth quarter of 2022. Revenues for the quarter were $11.3 million, sequentially higher than the fourth quarter of 2023 and that of the first quarter of 2020.
Speaker Change: Now for some perspective on Gse's business in Q1 of fiscal year 2024.
Speaker Change: The first quarter was a solid quarter with regards to new orders and revenue as described a few weeks ago on our fourth quarter conference call. We experienced some key contract wins in the first quarter that were originally supposed to close in the fourth quarter of 2023.
Speaker Change: As a result, new orders in the first quarter were $14 6 million up from $7 3 million in the fourth quarter, but lower from the first quarter, one year ago, where we also experienced some delays from the fourth quarter of 2022.
Speaker Change: Revenues for the quarter was $11 3 million sequentially higher than the fourth quarter of 2023 and that was the first quarter of 2023.
Ravi Khanna: Operationally, our engineering services led the way in the first quarter and helped with the improved results, including the company's gross profit margin at 28.5%. During the quarter, the Engineering Services Division recorded solid orders of $12.1 million, which was sequentially improved from $5 million in the fourth quarter, but lower than the $14.7 million booked in Q1 of 2023. The fluctuation in the order flow continues to remain in the industry, and while it is difficult to pinpoint the closing of the deals, they are closing, which is ultimately the important part of the story.
Speaker Change: Operationally, our engineering services led the way in the first quarter and helped with the improved results, including the company's gross profit margin at 28, 5%.
Speaker Change: During the quarter the engineering services Division recorded solid orders of $12 1 million, which was sequentially improved from 5 million in the fourth quarter, but lower than the $14 7 million booked in Q1 of 2023.
Speaker Change: The fluctuation in the order flow continues to remain in the industry and while it is difficult to pinpoint the closing the deals. They are closing which is ultimately the important part of the story.
Ravi Khanna: The timing of orders demonstrates the nature of the current market, and cautious customer spending in the industry during this tentative drive to adopt digital technology, extend plant lifetimes, and produce more power through targeted capital investment. These elements comprise what we feel will be a multi-decade positive supercycle that is now in the process of ramping up.
Speaker Change: The timing of orders demonstrates the nature of the current market cautious customer spending in the industry. During this tentative drive to adopt digital technology extend plant lifetime and produce more power through targeted capital investment.
Speaker Change: These elements comprise what we feel will be a multi decade positive super cycle that is now in the process of ramping up.
Ravi Khanna: The highlight of these orders was a significant order from a nuclear services company, but beyond that order, we received several key projects with Blue Chip customers, with a good mix of existing and new customers. In addition, services provided were diverse, but most involved the nuclear industry. A couple of key wins worth highlighting are a $6 million order for our continued simulation support of a U.S. government engineering laboratory. We also received the first contract funding for a $4.2 million contract for design and analysis work at a large utility.
Speaker Change: The highlight of these orders was significant order from a nuclear services company, but beyond that order. We received several key projects with blue chip customers with a good mix of existing and new customers.
Speaker Change: In addition services provided were diverse but most involved the nuclear industry.
Speaker Change: A couple of key one wins worth highlighting our $6 million order from our for our continued stimulation support of a U S. Government Engineering Laboratory. We also received the first tranche of funding for a $4 $2 million contract for design and analysis work at a large utility.
Ravi Khanna: As highlighted in our April press release, our Programs and Performance Division won a $765,000 order for Engineering Services for a 24-month fuel cycle extension. Moving to our Workforce Solutions Division, which continues to operate in a challenging environment, orders were slightly improved during the first quarter when compared with the fourth quarter, but much lower than the order flow experience a year ago. The segment had revenues of $2.6 million in the first quarter, down sequentially from $3.1 and $3.9 million in the first quarter one year ago.
Speaker Change: As highlighted in our April press release, our programs and performance Division one at $765000 order for engineering services for a 24 month fuel cycle extension.
Speaker Change: Moving to our workforce solutions Division, which continues to operate in a challenging environment orders were slightly improved during the first quarter when compared with the fourth quarter, but much lower than the order flow experienced a year ago. The segment had revenues of $2 6 million in the first quarter down sequentially from $3.
Speaker Change: One and $3 9 million in the first quarter one year ago.
Ravi Khanna: The division is still experiencing difficulties within the industry due to customers being selective with regard to on-site staff augmentation services as well as the competitive marketplace given the high fragmentation of staffing providers to the industry. We are currently focused on providing targeted staffing solutions to the nuclear industry that make sense to us and our customers in this market environment. To summarize, the first quarter results are a step in the right direction. While we have additional work ahead of us, I am excited about the future and believe the company is in a great position to capitalize on the opportunities in the marketplace.
Speaker Change: The division is still experiencing difficulties within the industry due to customers being selective with regards to onsite staff augmentation services as well as competitive marketplace, given the high fragmentation of staffing providers to the industry.
Speaker Change: We are currently focused on providing targeted staffing solutions to the nuclear industry that makes sense to us and our customers in this market environment.
Speaker Change: To summarize the first quarter results are a step in the right direction. While we have additional work ahead of us I'm excited about the future and believe the company is in a great position to capitalize on the opportunities in the marketplace.
Ravi Khanna: The nuclear industry is evolving and gaining much momentum on a global basis due to key tailwinds that include a pathway toward decarbonization and high demand for the electrical grid. Our business pipeline continues to remain strong, and while we can't control the timing of certain projects, the good news is that the maintenance upgrades aren't going away. They must get done to keep reactors safe and efficient. While the spending is not in our control, we will act on what is in our control.
Speaker Change: The nuclear industry is evolving and gaining much momentum on a global basis due to the key tailwind that include a pathway towards de carbonization and high demand for the electrical grid.
Speaker Change: Our business pipeline continues to remain strong and while we can't control the timing of certain projects. The good news is that the maintenance upgrades arent going away.
Speaker Change: Musket done to keep reactors safe and efficient.
Speaker Change: The spending is not in our control we will act on what is in our control and that means more boots on the ground and getting more face time with clients and offering them, our suite of services and software products.
Ravi Khanna: And that means more boots on the ground and getting more face time with clients and offering them our suite of services and software products, that can create many efficiencies given GSE's umbrella of various technology and engineering services. Through client engagement, we can educate them about the breadth of services and value we offer them by using GSE. I believe that GSE is well prepared to help these companies improve their facilities, and the company is positioned to move quickly when opportunities arrive. Arise, enabling our customers to get more value out of their budget.
Speaker Change: That can create many efficiencies given gse's umbrella of various technology and engineering services.
Speaker Change: Through client engagement, we can educate them and the breadth of services and value we offer them by using GSE.
Speaker Change: I believe that GSE is well prepared to help these companies improving their facilities and the company is positioned to move quickly when opportunities arise.
Alright, enabling our customers to get more value out of their budgets.
Ravi Khanna: Fiscal 2024 is off to a great start, but there is definitely more work to be done, and I'm eager to make certain improvements to put GSE in the best position on the field to compete with the vendor of choice and amongst our customers. I am proud to lead GSE into the future, and I believe we are in a great position to capitalize on the new renaissance that is emerging within the nuclear power industry.
Speaker Change: Fiscal 2024 is off to a great start, but there's definitely more work to be done and I'm, even to make certain improvements, but GNC in the best position on the field to compete with the vendor of choice.
Speaker Change: And amongst our customers.
Speaker Change: I am proud to lead GNC for the future and I believe we are in a great position to capitalize on the new Renaissance that is emerging within the nuclear power industry.
Ravi Khanna: I'd like to personally thank all of our GSE team members for the overwhelming support during this period of transition. To my colleagues and friends, I look forward to partnering with you to move GSE forward as one team and as a value-added platform to our customers. I will now turn the call over to Emmett Pepe, GSE's CFO, who will review the financial results for the first quarter of fiscal 2024.
Speaker Change: I'd like to personally thank all of our GSE 10 members team members for the overwhelming support during this period of transition to my colleagues and friends I look forward to partnering with you to move GSE forward as one team and as a value added platform to our customers.
Emmett Anthony Pepe: With 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. Revenue during the first quarter of 2024 was $11.3 million, an improvement from the first quarter of a year ago, which was $10.9 million, and a sequential increase of 10.5% compared to the $10.2 million in the fourth quarter of 2023. The increase in revenue was primarily attributable to increased utilization, which helped turn backlog into revenue at a faster rate.
Emmett Anthony Pepe: I will now turn the call over to Emmett Pepe <unk> CFO, who will review the financial results for the first quarter of fiscal 2024.
Speaker Change: Please proceed.
Emmett Anthony Pepe: Thank you Ravi.
Emmett Anthony Pepe: With 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.
Emmett Anthony Pepe: Revenue during the first quarter of 2024 was $11 3 million an improvement from the first quarter of a year ago, which was $10 9 million and a sequential increase of 10, 5% compared to the $10 2 million in the fourth quarter of 2023.
Emmett Anthony Pepe: The increase in revenue was primarily attributable to increased utilization, which helped turn backlog into revenue at a faster rate.
Emmett Anthony Pepe: The Engineering Services Division continues to show positive results overall, with revenues of $8.7 million, which was an increase of 26% from the 6.9 million a year ago and a 22.5% sequential improvement from the 7.1 million in the fourth quarter of 2023. Orders for the engineering services division were $12.1 million, up from $5 million recorded in the fourth quarter, but lower than the $14.7 million recorded a year ago due to a sizable order being received in the first quarter of 2023.
Emmett Anthony Pepe: The Engineering services Division continues to show positive results overall with revenue of $8 7 million.
Emmett Anthony Pepe: Which was an increase of 26% from the $6 9 million a year ago, and 22, 5% sequential improvement from the $7 1 million in the fourth quarter of 2023.
Emmett Anthony Pepe: Orders for the engineering services divisions.
$12 1 million up from 5 million recorded in the fourth quarter, but lower than the $14 7 million recorded a year ago due to a sizable order being received in the first quarter of 2023.
Emmett Anthony Pepe: The improvement in orders during the first quarter was due to an improved sales focus and our investment in the business development team in the past year, which has opened doors to new customers. Workforce Solutions Division revenue in the quarter was $2.6 million, lower from $3.1 million during the fourth quarter of 2023 and $3.9 million in the first quarter of a year ago. As Robbie indicated, the division continues to confront industry challenges.
Emmett Anthony Pepe: The improvement in orders during the first quarter were due to an improved sales focus and our investment in the business development team in the past year, which has opened doors to new customers.
Emmett Anthony Pepe: Workforce solutions Division revenue in the quarter was $2 6 million lower from $3 1 million during the fourth quarter of 2023, and $3 9 million in the first quarter a year ago.
Robbie: As Robbie indicated the division continues to confront industry challenges.
Emmett Anthony Pepe: Orders in the first quarter for workforce solutions were $2.5 million, lower than the $4.4 million received a year ago but slightly better than the $2.3 million in the fourth quarter of 2023 and $1.7 million in the third quarter of 2023. The division continues to experience certain challenges, including early terminations we receive from our clients, as well as increased competition and fewer on-site worker projects.
Robbie: Orders in the first quarter for workforce solutions were $2 5 million lower than the $4 4 million received a year ago, but slightly better than the $2 3 million in the fourth quarter of 2023, and $1 7 million in the third quarter of 2023.
Robbie: The division continues to experience certain challenges, including early terminations, we receive from our clients as well as increased competition and less onsite worker projects. We are closely monitoring this business and reviewing our options to have this unit would be more efficient and advantageous for the company in the longer term.
Emmett Anthony Pepe: We are closely monitoring this business and reviewing our options to have this unit be more efficient and advantageous for the company in the longer term. Gross profit in the first quarter was better at $3.2 million, or 28.5% of revenue. This compares to $2.6 million, or 25.5% of revenue for the fourth quarter of 2023, and $2.4 million, or 22% of revenue during Q1 of 2023. The increase is driven by our Engineering Services Division, which had gross profit margins of 33.3% compared to 27.1% a year ago and 29.5% last quarter. Engineering Utilization continues to be a major focus, and the first quarter results reflect the improvement.
Robbie: Gross profit in the first quarter was better at $3 2 million or 28, 5% of revenues.
Robbie: This compares to $2 6 million or 25, 5% of revenue for the fourth quarter of 2023.
Robbie: And $2 4 million or 22% of revenues during Q1 of 2023.
Robbie: The increase is driven by our engineering services Division, which had a gross had gross profit margins of 33, 3% compared to 27, 1% a year ago and 29, 5% last quarter.
Robbie: Engineering utilization continued to be a major focus in the first quarter results reflect the improvement.
Emmett Anthony Pepe: We increased our billable utilization to 94.4% in the first quarter, and that compares to 83.9% in the quarter one year ago. Operating expenses, excluding depreciation and amortization, were $4.6 million, which included $500,000 in one-time advisory fees. Compared to one year ago, OPEX was approximately $5 million. This shows despite one-time items, the company has lower costs and removed a lot of expenses that were in the business. We are confident in the expense reduction measures that were implemented in the last year.
Robbie: We increased our billable utilization to 94, 4% in the first quarter and that compares to 83, 9% and.
Robbie: In the quarter one year ago.
Robbie: Operating expenses, excluding depreciation and amortization in the first quarter were $4 6 million.
Robbie: Which included 500000 onetime advisory fees compared to one year ago, Opex was approximately $5 million.
Robbie: This shows despite onetime items the company has lowered costs and removed a lot of expenses that were in the business. We are confident in the expense reduction measures that were conducted in the last year.
Emmett Anthony Pepe: The OPEX per quarter should remain at similar levels in future quarters in the range of three and a half to four million per quarter. The net loss in the first quarter was $2 million, or a loss of $0.63 per share, which was improved when compared to the first quarter of 2023, which was a net loss of $3 million, or a loss of $1.29 per share. The adjusted net loss was $1.1 million, or a loss of $0.35 per share, compared to an adjusted net loss of $2,574,000, or a loss of $1.12 per share, in the first quarter of 2023.
Robbie: The opex per quarter should remain at similar levels in future quarters in the range of three and a half to $4 million per quarter.
Robbie: Net loss in the first quarter was $2 million or loss of <unk> 63 per share, which was improved when compared to the first quarter of 2023, which was a net loss of $3 million or a loss of $1 29 per share.
Robbie: Adjusted net loss was $1 one.
Robbie: $1 million or a loss of <unk> 35 per share compared to adjusted net loss of 2 million $5 74000, or a loss of $1 12 per share in the first quarter of 2023.
Emmett Anthony Pepe: Adjusted EBITDA totaled a negative $447,000 during the first quarter, compared to a negative $2.2 million in the first quarter of one year ago. The company's backlog ended the first quarter of 2024 at $37.7 million, up from $34.5 million at the end of the fourth quarter and fiscal year-end 2023. The majority of the backlog continues to lie within the Engineering Performance Division.
Robbie: Adjusted EBITDA totaled a negative 447000 during the first quarter compared to a negative $2 2 million in the first quarter from one year ago.
Robbie: The company's backlog ended the first quarter of 2024 at $37 7 million up from $34 5 million at the end of the fourth quarter.
Robbie: In fiscal year end 2023.
Robbie: The majority of the backlog continues to lie within the engineering performance Division.
Emmett Anthony Pepe: The engineering segment backlog was approximately $32.3 million at the end of the first quarter of 2004, which compares to $29 million at the end of the fourth quarter. Workforce Solutions Division was $5.4 million at the end of the first quarter of 2024 compared to $5.5 million at the end of the fourth quarter of 2023. Moving our discussion to the company's balance sheet, we exited the first quarter with $1.4 million in cash. The cash levels do not include restricted cash of $1.5 million, which is used to secure four letters of credit with various customers totaling $1.1 million and $400,000 to secure our corporate credit card program.
Robbie: The engineering and segment backlog was approximately $32 3 million at the end of the first quarter of 'twenty, four which compares to $29 million at the end of the fourth quarter.
Robbie: Workforce solutions Division was $5 4 million at the end of the first quarter of 2024 compared to $5 5 million at the end of the fourth quarter of 2023.
Robbie: Moving our discussion to the company's balance sheet, we exited the first quarter was $1 4 million in cash the cash levels do not include restricted cash of $1 5 million, which is to secure for letters of credit with various customers totaling $1 1 million and 400000 to secure corporate credit card program.
Emmett Anthony Pepe: We continue to make payments on our convertible debt secured with LEND. We will be concluding our repayments on the first tranche this month. And as of today, we have repaid $6.2 million, with just $100,000 remaining on the first convertible note. This demonstrates great progress and the potential of the company moving forward. In June 2024, we will begin to repay the second tranche of 1.8 million from land and anticipate full repayment by May 2025.
Robbie: We continue to make payments on our convertible debt secured with Lynn.
Robbie: We'll be concluding our repayments on the first tranche this month and as of today, we have repaid $6 2 million, which is the 100000 remaining on the first convertible note.
Robbie: This demonstrates great progress in the potential of the company moving forward.
Robbie: In June 2024, we will begin to replay the second tranche of $1 8 million from Lin and anticipate full repayment by May 2025, we continue to review on a monthly basis, the determination on whether to repay in cash stock or a combination of both.
Emmett Anthony Pepe: We continue to review on a monthly basis the determination of whether to repay in cash, stock, or a combination of both, and we'll prioritize paying in cash whenever possible. Meanwhile, while we continue, while we are still working in a challenging environment, we continue to examine every expenditure, and we'll reduce costs where we can to preserve our cash position. That said, we have made great progress reducing our operating expenses as compared to one year ago, and I'll reiterate that while there are always some quarterly shifts of costs.
Robbie: And we will prioritize paying in cash whenever possible.
Robbie: While we continue while we are still working in a challenging environment. We continue to examine every expenditure and will reduce costs, where we can to preserve our cash position.
Robbie: That said, we have made great progress, reducing our operating expenses as compared to one year ago and I'll reiterate that while there are always some quarterly shifts of costs. We are targeting quarterly expenses at around three $5 million to $4 million. We remain optimistic that the company can book additional orders in the coming quarters, which along with our improved utilization.
Emmett Anthony Pepe: We are targeting quarterly expenses at around $3.5 to $4 million. We remain optimistic that the company can book additional orders in the coming quarters, which, along with our improved utilization, will result in improved cash flow. While there's more work to be done, the company has made significant strides to become a leaner operation and is positioned to further improve its cash flow and financial results. Now, I'll turn the conversation back to Rob.
It will result in improved cash flow.
Robbie: While there's more work to be done the company has made significant strides to becoming a leaner operation and is positioned to further improve our cash flow and financial results.
Speaker Change: I'll now turn the conversation back to Robyn.
Robyn: Thank you and at the first two weeks of my tenure as President and CEO of GSE has been extremely busy and exciting I've been welcomed with incredible support and energy from our amazing team and customers I am extremely pleased about the opportunities that lie ahead and can relate to you that the company is in a great position moving forward.
Ravi Khanna: The first two weeks of my tenure as President and CEO of GSE have been extremely busy and exciting. I have been welcomed with incredible support and energy from our amazing team and customers. I am extremely pleased about the opportunities that lie ahead and can relate to you that the company is in a great position moving forward. We have the right team players on the field for success.
Robyn: We have the right team players on the field for success.
Ravi Khanna: I'm very optimistic about the future of the company and the industry we operate in. The company has worked hard during 2023 to get to where we are today, and it is now aligned to focus on higher-margin business and deliver revenue in a more efficient manner. I think the company can capitalize on leveraging many of its services through more collaborations and being more encompassing with GSE's technology suite and our platform of engineering services we can provide to the industry, allowing customers to do more with less.
I am very optimistic about the future of the company and the industry we operate in.
Robyn: The company has worked hard during 2023 to get to where we are today and it is now aligned to focus on higher margin business and deliver revenue in a more efficient manner.
Robyn: The company can capitalize on leveraging many of its services through more collaborations and being more encompassing with Gse's technology suite and our platform of engineering services, we can provide to the industry, allowing customers to do more with less.
Ravi Khanna: In addition, GSE offers a unique value proposition to customers given our breadth of services offering. And we can react very quickly to our customers' needs in a way that reduces risk and minimizes rework given our technology and engineering integrated approach. This has helped us win in the past and will help us win in the future. While the market environment is still somewhat conservative, we know that strong tailwinds do exist for the nuclear industry and will result in an improved environment in the long term. With that, Adam, please proceed with the question and answer session. We will now begin the question-and-answer session to ask a question.
Robyn: In addition, GSE offers a unique value proposition to customers given our breadth of services offerings and we can react very quickly to our customers' needs in a way that reduces risk and minimizes rework given our technology and engineering integrated culture.
Robyn: This has helped us win in the past and will help us win in the future while the market environment is still somewhat conservative.
Speaker Change: No that strong tailwind do exist for the nuclear industry and result in improved environment and the long term.
Adam Lowenstein: With that Adam. Please proceed with the question and answer session.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using the speakerphone, please pick up your handset before pressing the keys. If at any time you find that your question has been addressed and would like to withdraw your question, please press star then 2. Again, if you have a question, please press star 1. Seeing that there are no questions on the phone, I would like to turn it over to Adam to review some questions he has prepared.
Speaker Change: Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: They are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time, a question has been addressed and we'd like to withdraw your question. Please press Star then two.
Speaker Change: Yeah.
Speaker Change: Again, if you have a question please press star one.
Okay.
Speaker Change: Seeing that there are no questions on the phone I would like to turn it over to Adam to Rick to review some questions. He has prepared.
Adam P. Lowensteiner: Thanks, Danielle. I have a few questions for the management team as well. Robby, I know you've only been the CEO for a couple weeks, but can you share your strategy or share some initial thoughts of where you'd like to direct the company? What are some of your positives, and what do you want to improve on?
Adam Lowenstein: Thanks, Danielle I have a few questions for the management team as well.
Adam Lowenstein: Ravi I know you've only been the CEO for a couple of weeks, but can you share your strategy or share. Some initial thoughts of where you would like to direct the company. What what are some of your positives you see in what what do you want to improve on.
Ravi Khanna: Thanks Adam. Great question.
Ravi Connor: Thanks, Adam a great question. So yes, it's been a couple of weeks, but I can tell you that being here for several years, we clearly have very deep expertise not just in our engineering fundamentals, but plant specific expertise. So I do see a future where we are coupling that.
Ravi Khanna: So, yes, it's been a couple of weeks, but I can tell you that having been here for several years, we clearly have very deep expertise, not just in our engineering fundamentals but plant-specific expertise. So I do see a future where we are coupling that with technology, and when I look at the company as a whole, with our various divisions, a lot of the work works towards the same initiatives. Things like digital upgrades for power plants require procedures, engineering analysis, design analysis, and even a training impact assessment. So having one team work on initiatives like this together, I see it as a no-brainer for customers to look to us.
Ravi Connor: With technology and when I look at the company as a whole with our various divisions a lot of the work works towards the same initiatives things like digital upgrades, where power plants those require procedures engineering analysis design analysis, and even the training impact assessment.
Ravi Connor: So having one team work on initiatives like this together I see it as a no brainer for customers to look to us.
Adam P. Lowensteiner: You mentioned in your previous remarks an SMR win. Can you discuss the opportunity there? How long was that in the works, and are there more opportunities like this to be had?
Speaker Change: You mentioned in your formal remarks.
Speaker Change: And SME or when can you discuss the opportunity there how long was that in the works and are there more opportunities like this to be had.
Ravi Khanna: Thanks Adam. So I will say that more information about that SMR blend will be in a future press release, but it does relate to our work with the aspects of this company related to the government. And I think primarily there was a lot of interest in our ability to do very high-fidelity modeling and the digital twin era of engineering simulation that would actually support the advancement of the design. So again, using simulation for well beyond training but advancing a power plant design and then maximizing the reuse of that deliverable all the way through the project life cycle. That was a major part of the story there, and that had been in the works for over a year.
Adam Lowenstein: Thanks, Adam So I will say that some more information about that as smart win will be in our future press release upcoming.
Adam Lowenstein: But it does relate to our work with the.
Adam Lowenstein: Aspects of this company related to the government.
Adam Lowenstein: And I think primarily there was a lot of interest in our ability to very high fidelity modeling and the digital twin era of engineering simulation.
Adam Lowenstein: That would actually support advancement of the design, so again using simulation for well beyond training, but advancing a power plant design and then maximizing the reuse of that deliverable all the way through the project lifecycle that was a major part of the story there and that has been in the works for over a year.
Adam Lowenstein: Very excited about it.
Adam P. Lowensteiner: Emmett, you've done a very good job at streamlining the company to be more efficient and getting expenses down. Are there any more cost cuts to be had?
Speaker Change: And you've done a very good job of streamlining the company to be more efficient getting expenses down are there anymore cost cuts to be had.
Emmett Anthony Pepe: I think we're constantly looking at our expenses, but more importantly, it's looking at efficiencies, right? I think we've got, with Ravi and Damien on board, a fresh perspective looking at how we do things and how we can become more efficient. I think that will naturally drive some cost savings with that approach.
Speaker Change: I think we're constantly we're constantly looking at.
Speaker Change: Our expenses I think more importantly.
Speaker Change: It's looking at efficiencies right I think we got.
Speaker Change: With Ravi and Damian onboard where avenova.
Speaker Change: Fresh fresh perspective.
Speaker Change: Looking at how we do things and how we can become more efficient I think that will naturally draw.
Speaker Change: Drive some cost savings.
Speaker Change: With that approach.
Adam P. Lowensteiner: And just to review, I know you mentioned a little bit in your comments. Can you give us an update on the debt still owed? What's the timeline on that? And, you know, is the company being debt-free a possibility in the future?
Speaker Change: And just to review I know you mentioned a little bit in your comments can you give us an update with the debt still oh, what's the timeline of that and.
Speaker Change: Is the company being debt free a possibility in the future.
Emmett Anthony Pepe: Yeah, I'll start by saying, yeah, that's absolutely the target, right? We are basically winding down the original note this month, and in June, we start paying back the $1.8 million that will be paid by May 25. So we are one year away from being debt-free. And our goal is to continue the growth of the business and manage it efficiently, without any new debt going forward.
Speaker Change: Yeah, I'll start by saying, yes, that's absolutely the target rate, we are basically winding down the.
Speaker Change: The original note.
Speaker Change: This month and in June we start paying back the $1 8 million.
Speaker Change: That will be paid by May of 25, So we are.
Speaker Change: One year away from debt free and our goal is continue the growth of the business and manage it efficiently.
Speaker Change: To not have to.
Speaker Change: Have any new debt going forward.
Adam P. Lowensteiner: Great. Thank you. That's all the questions I have.
Speaker Change: Great. Thank you that's all the questions I have.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Ravi Khanna for closing remarks.
Ravi Connor: This concludes our question and answer session I would like to turn the conference back over to Ravi corner for closing remarks.
Ravi Khanna: Well, hey, thank you for joining us. We appreciate your time and interest in GSE and look forward to speaking with and meeting with many of you in the near future. The company will be participating in the upcoming Linden Partners Spring 2024 Investor Conference on May 30th, and if you'd like a one-on-one meeting, please reach out to Adam Lowensteiner at Linden Partners, and we'd be happy to schedule one for you. Thanks again, everyone, and we wish you a great day.
Ravi corner: Well hey, thank you for joining US we appreciate your time and interest in GSE and look forward to speaking and meeting with many of you in the near future. The company will be participating in the upcoming Lytham partners Spring 2024, Investor Conference on May 30, and if you'd like a one on one meeting please reach out to Adam loan Center.
Ravi corner: For Lytham partners, and we'd be happy to schedule them for you.
Ravi corner: Thanks, again, everyone and we wish you a great day.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.