GSE Methods, Inc. (GVP) This autumn 2022 Earnings Convention Name March 30, 2023 4:30 PM ET
Company Individuals
Adam Lowensteiner – Lytham Companions
Kyle Loudermilk – President and Chief Government Officer
Emmett Pepe – Chief Monetary Officer
Convention Name Individuals
Operator
Good afternoon, and welcome to the GSE Methods Stories Fourth Quarter and Fiscal 12 months 2022 Monetary Outcomes Convention Name. All contributors can be in a listen-only mode in the present day. [Operator Instructions]. Please word that this occasion is being recorded in the present day.
I might now like to show the convention over to Adam Lowensteiner, Vice President at Lytham Companions. Please go forward, sir.
Adam Lowensteiner
Thanks, Joe, and good afternoon, everybody. Thanks all for becoming a member of us in the present day to evaluation the monetary outcomes for GSE Methods for the fourth quarter and monetary 12 months ended December 31, 2022. With us on the decision representing the corporate in the present day are Kyle Loudermilk, President and CEO of GSE Methods and Emmett Pepe, Chief Monetary Officer of GSE Methods.
Earlier than we start, I want to remind everybody that statements made through the course of this name could also be thought of forward-looking statements inside the which means of Part 27A of the Securities Act of 1933 as amended in Part 21E of the Securities Act of 1934. These statements mirror present expectations regarding future occasions and outcomes. Phrases similar to count on, intend, consider, might, will, ought to, might, anticipate and comparable expressions are phrases which are used to determine forward-looking statements, however their absence doesn’t imply an announcement shouldn’t be forward-looking. These statements should not ensures of future efficiency and are topic to dangers and uncertainties and different necessary elements that might trigger precise efficiency or achievements to be materially totally different from these projected.
For a full dialogue of those dangers, uncertainties and elements, you’re inspired to learn GSE’s paperwork on file with the Securities and Alternate Fee, together with these set forth in periodic reviews filed below the Ahead-looking Statements and Threat Components part. GSE doesn’t intend to replace or revise any forward-looking statements, whether or not because of new data, future occasions or in any other case.
On this name, administration might confer with EBITDA, adjusted EBITDA, adjusted internet earnings and adjusted EPS, which aren’t measures of monetary efficiency below typically accepted accounting rules or GAAP. Administration believes that these non-GAAP figures, along with different GAAP measures present significant supplemental data relating to the corporate’s operational efficiency. Traders ought to acknowledge that these non-GAAP figures may not be akin to equally titled measures of different firms. These measures ought to be thought of along with and never as an alternative to or superior to any measure or efficiency ready in accordance with GAAP. A reconciliation of non-GAAP measures to probably the most immediately comparable GAAP measures in accordance with SEC Regulation G will be discovered within the firm’s earnings launch.
With that, I might now like to show the decision over to Mr. Kyle Loudermilk, President and Chief Government Officer of GSE Options. Kyle, please proceed.
Kyle Loudermilk
Thanks, Adam. I might wish to welcome everybody to GSE’s fourth quarter and monetary 12 months 2022 monetary outcomes convention name. Earlier in the present day, we issued a press launch detailing our monetary outcomes. Hopefully, you’ve got had an opportunity to evaluation this information launch, but when not, a replica will be discovered on our web site at www.gses.com below the Information part.
To put out the agenda for in the present day’s name, I’ll begin first with a short replace on the trade, then talk about GSE’s enterprise within the quarter and monetary 12 months throughout our traces of enterprise. And eventually, present a abstract of our give attention to gross sales and income era. Emmett Pepe, our CFO, will evaluation the monetary outcomes, and we’ll conclude with a Q&A session.
So first, a short replace on the trade. As I am certain a lot of you’ve gotten seen, the nuclear trade is within the early phases of what guarantees to be a long-term resurgence. Nuclear energy is being universally acknowledged as a essential power supply for nationwide safety and attaining carbon discount objectives. Each, conservative and liberal political events, assist the rising renewal of nuclear energy.
Nations in Japanese Europe are actively planning for constructing conventional reactors and SMRs. In the UK, there was discernible progress to advance the event of SMRs in addition to potential new builds of conventional reactors. As we have mentioned both method, the trail to constant clear energy is thru nuclear.
In the USA and Canada, important planning is underway for initiatives that can lengthen the lifetime of present services, undertake capital funding to provide extra energy from these services, and we now have seen bulletins relating to advancing building of SMRs, most notably from NuScale and GE Hitachi. The latest start-up of the Vogtle 3 nuclear reactor in Georgia is the primary nuclear reactor to go essential in seven years in the USA and the primary new construct in 30 years. Unit 3 is predicted to come back within the full service over the following few months and Vogtle Unit 4 is nearing completion and anticipated to start out up early subsequent 12 months. This can be a nice achievement for Southern Firm and for the trade.
As I discussed, one other space of focus for the trade is making use of for license extensions for present nuclear reactors. As a consequence of latest laws, together with the Inflation Discount Act, there at the moment are extra incentives to maintain these services operational and put money into them to provide extra energy by means of capital enchancment. The IRA has provided the nuclear trade a path to generate an inexpensive return to provide the constant and clear energy from nuclear going ahead.
The funding is significant and has helped transition the mindset of facility operators from contemplating shutting down 5 years in the past to sustaining, upgrading and lengthening the lifetime of the crops. For example, Xcel Vitality’s North States Energy in Minnesota lately utilized for a 20-year working license extension for its Monticello reactor, which at the moment runs by means of 2030. This may be the power’s second 20-year extension. And if granted, would preserve the power open by means of 2050. Most services are granted an preliminary lifespan of 40 years after which, it may apply for extensions often in 20-year increments.
Thus far in the USA, six nuclear crops have acquired extensions to succeed in 80 years, and a further 25 have utilized for or have indicated that they are going to be searching for license renewals. All these services would require important engineering work for packages, upkeep and capital enhancements to repeatedly lengthen the operations for these crops and over time, seemingly apply to provide extra energy given the incentives in place to take action.
So wanting ahead, the trade additionally continues to give attention to next-generation reactors referred to as small modular reactors or SMRs. There’s numerous funding within the trade to make SMRs a actuality within the years to come back. Because the trade strikes in the direction of the commercialization of SMRs, GSE stays a key accomplice for the trade and able to assist in delivering SMRs to {the marketplace}.
As a lot of you’re already conscious, NuScale, a publicly traded firm below the ticker SMR, is a long-term accomplice of GSE, and we have been working with them for over 10 years in serving to them with their improvement of SMRs. We introduced through the fourth quarter and early this 12 months, the contracted work we now have gained to assist them develop a hydrogen plant mannequin for his or her Voyager SMR. Hydrogen can be a essential gas for the power transition that has begun and it is very thrilling for us to be concerned on the front-end of this transition.
The macro-output for nuclear power trade continues to stay strongly constructive. World consciousness, the significance of nuclear energy for power safety, environmental fairness and grid reliability is driving additional motion to maintain present nuclear energy fleets, produce extra energy from these belongings and speed up the trail in the direction of adoption of next-generation nuclear energy expertise. Whereas it takes important time for the trade to maneuver by means of the planning course of to challenge execution and spending, we really feel that the trade is getting into a serious cycle of long-term funding and progress barring any main disruptions.
Now for some perspective on GSE’s enterprise in This autumn and monetary 12 months 2022. Fiscal 2022 is a transitional 12 months for GSE. We needed to make key adjustments and investments to place the corporate for future alternatives, all of the whereas conserving a lid on general prices and remaining as lean as attainable. Whereas the corporate’s efficiency wants to enhance, we now have entered 2023 having retooled key parts of the enterprise and with some key wins and momentum.
Trying on the fourth quarter, it was a stable exhibiting contemplating we’re anticipating higher order stream and skilled some slippage into the primary quarter. This has pushed issues to the precise, however the excellent news is that the enterprise that slipped from This autumn did shut in early Q1, and we’re beginning to bid on extra alternatives.
The corporate’s Efficiency Engineering division continued its cost through the fourth quarter and monetary 12 months. Revenues for the fiscal 12 months climbed 6.3% for the division, roughly to $30 million led by techniques and simulation. The stable efficiency of the Efficiency Engineering division included robust license income, which helped enhance our gross margins year-over-year and sequentially from the third quarter.
We proceed to win new enterprise on this division. Undertaking order stream within the quarter was decrease than anticipated, however as talked about that was primarily the results of key orders slipping from This autumn into early Q1 in 2023. Regardless of this, we recorded necessary wins through the quarter, primarily for simulations and techniques providers in addition to for packages and efficiency providers.
A serious deal that closed in early Q1 is the renewal contract that features a significant enlargement of providers with two U.S. authorities engineering laboratories devoted to the assist of the U.S. Navy. This can be a five-year contract that has choices to make it value as much as $28 million over that point. GSE has been below a sequence of service contracts with these laboratories for over 20 years, and this renewal is a testomony to the robust relationships we now have created with these laboratories and the providers delivered to them over that point. We’re proud to serve the mission of those necessary nationwide belongings.
One other necessary award that slipped from This autumn to Q1 was a brand new contract in partnership with the nuclear gas expertise and providers provider to assist a big U.S.-based utility with new engineering program providers to assist a 24-month gas cycle operation challenge.
Transferring to a 24-month gas cycle from a extra typical 18 months shouldn’t be a simple process, however when achieved, might help the operator make the plant extra environment friendly and create main value financial savings. We’re enthusiastic about this win because it additionally reveals the breadth of the capabilities GSE can provide prospects, whereas positioning us as a frontrunner as we work to win comparable alternatives with different operators and crops shifting ahead.
One other important win is the latest announcement of the improve of the coaching simulators on the Olkiluoto nuclear energy plant in Finland. This contract, which is value almost $900,000 is predicted to ship key new capabilities for TVO as soon as accomplished over the following two years. I am actually enthusiastic about these wins, and they’re a wonderful cross-section of the credibility we have constructed within the trade and the forms of totally different choices and providers solely we are able to uniquely provide to the trade.
Transferring to our Workforce Options enterprise. It has been a difficult 12 months, and the outcomes show the problems we have needed to overcome. Income was $3.3 million for the fourth quarter and $17.8 million for the 12 months, each decrease on a year-over-year foundation. That mentioned, we now have been extraordinarily busy retooling the division throughout 2022 and have made important progress in rebuilding the gross sales and recruiting groups for this enterprise. We’re at the moment within the midst of turning across the division and are beginning to see early returns on the investments and enhancements we have made. Whereas there’s extra work to be completed, a serious constructive was that through the fourth quarter, we did see new order stream enhance from the third quarter.
Now I might like to debate our give attention to gross sales and income era. Whereas revenues weren’t at our historic ranges, this was resulting from prospects remaining within the planning versus the execution stage for capital spending on their services, it is irritating. And because of this, we’re nonetheless anticipating spending to get better to pre-pandemic ranges. GSE was busy, nevertheless, through the 12 months to make sure adjustments and investments and put the corporate on higher floor with retooled capabilities and with new expertise.
Our most up-to-date announcement on this entrance has been the hiring of Ray Hruby as our new Head of Gross sales for the corporate. As I discussed on prior calls, GSE was in want of the brand new Head of Gross sales and discovering that proper individual would take a while. We’re delighted to have Ray on board. He brings over 40 years of expertise in nuclear and deep trade relationships for challenge engineering into our firm. He is begun to get us in entrance of firms at government ranges to get GSE recognized at that stage and to place us in a chief place as capital spend for engineering providers begins to enhance.
So to summarize, we have made good progress through the fourth quarter and monetary 12 months, continued robust license income accompanied by latest improved orders and bookings are the results of getting out in entrance of consumers and being aggressive to win the enterprise that’s out there to us, whereas setting the stage to seize extra enterprise as trade spend recovers. We’re centered on focusing on funding in revenue-generating positions and actions. The group is extremely motivated, taking possession of what we are able to management, and we’re shifting ahead. The numerous thrilling developments within the trade proper now proceed to make me really feel assured about our future.
I will now flip the decision over to Emmett Pepe, GSE’s CFO, who will evaluation the fourth quarter monetary outcomes. Emmett, please proceed.
Emmett Pepe
Thanks, Kyle.
With the numbers highlighted intimately on the press launch, let me focus my feedback on a number of areas and supply added shade the place I can. We’re happy with the progress that we’re seeing in our order stream for This autumn regardless of some important offers slipping into Q1 of ’23. Gross orders for the quarter have been $12.7 million, offset by $1.3 million of unused backlog on accomplished initiatives. The online orders quantity of $11.4 million was a 12% enhance from the prior quarter. We’re beginning to see the early indicators of the investments that have been made into the enterprise improvement capabilities of every section.
Income through the fourth quarter of ’22 was $10.8 million, a lower of twenty-two% in contrast with $13.9 million within the fourth quarter of 2021 and 9% decrease when in comparison with the $11.9 million within the third quarter of 2022. Revenues from the corporate’s Efficiency Engineering have been improved through the fourth quarter, rising 10% year-over-year however barely decrease sequentially from the third quarter of 2022. These enhancements have been offset by decrease revenues from the Workforce Options division resulting from interim discount in buyer demand.
Our Efficiency Engineering division continued to carry out effectively for the corporate with revenues of $7.5 million for the fourth quarter of 2022, this in comparison with $8.1 million within the third quarter of 2022 and in comparison with $6.8 million within the fourth quarter of 2021. Orders for this division have been decrease within the fourth quarter right down to $4.6 million when in comparison with the third quarter of 2022, which was $7.2 million, and decrease when in comparison with the fourth quarter of 2021 when it was $7.4 million.
As Kyle talked about briefly, we did expertise some new order slippage into the primary quarter and because the giant order with the U.S. Navy closed through the fourth quarter, new orders — had the big order closed within the fourth quarter, new orders would have improved each, sequentially and year-over-year.
Revenues within the quarter have been barely decrease on a sequential foundation from the third quarter resulting from completion of sure initiatives however was increased year-over-year resulting from extra income inside the firm’s Methods and Simulation division which has been executing on backlog initiatives. Our Packages and Efficiency division, beforehand referred to as True North Consulting, confirmed constant stream of revenues from prior quarter and was up barely from a 12 months in the past.
Transferring ahead, we stay optimistic in regards to the alternative pipeline for this division. The Design and Evaluation division beforehand referred to as DP Engineering, was principally in line from the third quarter and a slight decline from the fourth quarter of 2021. We’re actively working this enterprise unit to develop its attain and buyer base and are inspired by the suggestions we acquired from prospects.
Now shifting to our Workforce Options division. Income within the quarter was $3.3 million in comparison with $3.8 million within the third quarter of 2022 and in comparison with $7 million within the fourth quarter of 2021. Orders have been considerably increased within the quarter on a sequential foundation at $6.8 million, up 127% from the $3 million within the third quarter of 2022, however nonetheless decrease from the fourth quarter a 12 months in the past once they have been $10.5 million.
As beforehand mentioned, through the fiscal 12 months 2022, we now have been busy retooling the division with new gross sales and recruiting hires to construct a balanced and productive group that may herald new prospects and recruit construct professionals to fill roles. We’re excited in regards to the potential alternatives that this group has recognized and have made some progress as seen within the enchancment within the new orders for the division through the fourth quarter.
Gross revenue within the fourth quarter of 2022 was $3.1 million or 28.2% of income. This in comparison with gross revenue of $3.3 million or 27.4% of income within the third quarter of ’22 and $3.1 million or 22% of income within the fourth quarter of ’21. Gross margin improved resulting from challenge combine, together with the good thing about our software program gross sales and extra income coming by means of Efficiency Engineering division, which carries increased margins. Whereas revenues have been decrease at Workforce Options, the margin have been 16.2% within the fourth quarter, roughly flat in comparison with the year-ago interval and barely up from the third quarter’s 15.7%, however delivering on the increased a part of that vary that this division sometimes yields and exhibiting the upper high quality of orders coming by means of.
We’ve seen a rise in direct rent placement actions, partly because of the present labor atmosphere, but in addition because of our retooling the gross sales and recruiting group in Workforce Options section. We’re enthusiastic about rising this piece of our enterprise because it delivers a lot increased margins than our conventional workers augmentation enterprise.
Working bills, which excludes restructured depreciation and amortization expense, within the fourth quarter of 2022 have been $3.9 million in comparison with $4.5 million within the third quarter of 2022 and $4.6 million within the fourth quarter of 2021. The lower in This autumn was partially resulting from tighter expense controls. As we glance into 2023, we’re taking a essential have a look at our bills and consider we now have recognized further value containment measures. As we now have talked about on earlier calls, 3 facility leases are ending in a number of months, which can present a possibility to lower our bodily footprint and our fastened prices. We’re additionally extra typically assessing our vendor spend with an eye fixed on bettering our money stream.
Web loss within the fourth quarter of 2022 was $1.5 million or a lack of $0.07 per share in comparison with a lack of $1.9 million within the fourth quarter of 2021 or a lack of $0.09 per share. Adjusted internet loss was $1.1 million or $0.05 per share within the fourth quarter of 2022 in comparison with an adjusted internet lack of $1.1 million and $0.05 per share within the fourth quarter of 2021. Adjusted EBITDA confirmed some enchancment with a lack of $407,000 within the fourth quarter in comparison with a lack of $1.1 million in This autumn of 2021 and a lack of $690,000 reported within the third quarter of 2022.
The corporate’s backlog remained wholesome on the finish of the quarter, however vastly improved subsequent to the quarter finish resulting from some key new orders acquired, as Kyle talked about beforehand. The backlog on the finish of the fourth quarter was $32.9 million, a slight enchancment when in comparison with the $32.3 million on the finish of the third quarter of 2022, as the corporate was in a position to safe further new orders throughout December. Backlog ranges at December 31, 2021, totaled $41.3 million.
The Efficiency Engineering section backlog was $23.8 million, and Workforce Options division was $9.1 million on the finish of the fourth quarter and compares to $26.7 million and $5.6 million, respectively, on the finish of the third quarter. Backlog for Efficiency Engineering division was $31.8 million on the finish of the fourth quarter of 2021 and $9.5 million for Workforce Options at that very same interval. These backlog figures actually spotlight the corporate’s efficiency. Whereas the corporate has burned off some older orders and reported a decrease backlog versus the 12 months in the past interval, there have been a number of orders that closed in that first quarter of ’23. And when added to the backlog ranges on the finish of ’22, which present a large enchancment in backlog ranges, getting the corporate again to ranges much like a 12 months in the past interval, giving us a wonderful place to begin for 2023.
Transferring our dialogue to the corporate’s steadiness sheet. We exited the fourth quarter with $2.8 million in money and that compares to the $3.6 million on the finish of 2021. The 2022 money ranges don’t embody restricted money of $1.6 million, which is to safe 4 Letters of Credit score with numerous prospects totaling $1.1 million and $500,000 to safe our company bank card packages.
We proceed to make funds on our convertible debt secured in February of 2022. On a month-to-month foundation, we make a willpower primarily based on our money steadiness and money forecast on whether or not to repay money, inventory or a mixture of each. Funds on the convertible debt can be accomplished in February of 2024.
The corporate had $1 million of ERC refunds excellent on the finish of the fourth quarter. We did obtain $900,000 this previous January, and we expect to obtain the remaining ERC refunds from the IRS within the subsequent three to 6 months of roughly $100,000. At this level, we now have efficiently acquired nearly all of our ERC refunds thus far. Whereas we’re nonetheless working in a difficult atmosphere, I’m happy with the actions within the fourth quarter and monetary 2022 to take care of stable capital construction. And the outcomes show that the corporate has stabilized and ready for future progress.
I am additionally proud that we made the mandatory investments and adjustments internally to enhance our again workplace. These enhancements, which embody the completion of our ERP techniques migration challenge will assist the corporate shifting ahead and put us in a stable place to be awarded extra enterprise.
As well as, we now have further efficiencies we consider we are able to put into place and are at the moment inspecting our choices to decrease the corporate’s prices. We additionally wish to remind traders that along with the leases that run off throughout 2023, we anticipate that there can be additional value containment capabilities, and we are going to report on these when acceptable.
I will now flip the dialog again to Kyle.
Kyle Loudermilk
Thanks, Emmett.
To summarize, the fourth quarter and monetary 12 months monetary outcomes have been intervals of rebuilding and funding to organize the corporate for brand new alternatives and the renewal within the nuclear trade. The corporate carried out effectively within the Engineering division that we made strides in retooling our Workforce Options division evidenced by higher order stream within the fourth quarter. Proceed to get in entrance of consumers and work with them by means of the present challenges of excessive inflation and financial uncertainty. And we’re performing and executing on what’s in our management and ensuring we’re positioned effectively for future alternatives.
We proceed to fulfill with prospects and potential prospects extra regularly to ensure we promote what GSE can do and add worth to their operations.
Three key catalysts are nonetheless on the forefront for driving progress for nuclear trade, the necessity for secure grid, drive in the direction of power, safety and independence, and decarbonization of the facility sector. These catalysts that give us confidence that the nuclear trade can be more and more in demand for the foreseeable future. Given our very distinctive scenario as a closely tech-enabled supplier of important providers, to the decarbonization of the facility sector and nuclear trade, we stay very assured in our alternative to create substantial long-term worth.
With that mentioned, Adam, please proceed with the question-and-answer session.
Query-and-Reply Session
Operator
[Operator Instructions].
Kyle Loudermilk
Adam, I do know you had a few questions that you just had teed up. Why do not you go forward and ask these?
Adam Lowensteiner
Certain, Kyle. The big order with the U.S. Navy, possibly are you able to talk about, is that incremental in worth in comparison with the final contract signed 5 years in the past?
Kyle Loudermilk
Sure, it is a good query. It’s. It has elevated in its annual worth potential to GSE for this contract. Once more, an actual testomony to the group that is been doing an awesome job there and actually distinctive capabilities, we’re engaged on for Navy and proud to serve that mission. We even have further contracts with Navy, which have developed over the previous 5 years. So along with the numerous contract, there are different contracts in parallel that we each, created and now are executing on. And so this can be a nice relationship, very grateful for the chance to serve Navy. And in order that was query, Adam. Thanks.
Adam Lowensteiner
Kyle, you talked about within the final name a few journey to Japan. How is the journey? What are the alternatives there like?
Kyle Loudermilk
Proper. We’ve actually been on the highway, myself personally continuous from August by means of December and, after all, partaking with purchasers even when not on highway. However actually have been underway the complete time and had the chance to line-up a sequence of visits with prospects and prospects in Japan and for early to mid-December.
And it is actually fascinating, Japan could be very dedicated. This was proper after Japan opened up after COVID. In order that they opened up a few 12 months later than the USA. So we have been on one of many first flights on the market to get in entrance of consumers, work with the U.S. Embassy. I might wish to thank them and Division of Commerce for serving to us set up new relationships in nuclear in Japan with new folks. And trade could be very keen to start out up extra of their reactors, however that is a really sluggish tempo.
So in addition they actually need to us to work on implementing some knowledge validation and reconciliation and thermal efficiency research for his or her crops. That is actually to grasp how they’ll produce optimum energy from their present belongings which are up and operating in addition to there’s some good simulation challenge work that’s forward of us.
Adam Lowensteiner
You talked about that there have been some new orders that got here in Q1 and have been supposed to shut in This autumn. How ought to traders view the improved backlog? Are you able to give us any further shade there?
Emmett Pepe
Hello, Adam. It is Emmett. I feel as I discussed on the decision, I feel shade is that we now have a robust pipeline and numerous instances, the stuff does shift. I feel the excellent news is that these offers closed early within the quarter. And as talked about on the decision, I feel it places us again according to our historic backlog ranges from 2021. And I feel the larger factor is, we’re now positioned proper out of the gate in 2023 with a robust order firstly of the 12 months.
Adam Lowensteiner
And yet one more query. Are you able to give us an replace with the NASDAQ necessities and firm plans to get again into compliance?
Emmett Pepe
I feel for that, Adam, I might simply reference the 8-Ok that we filed final November after we initially acquired the discover that firm has till Could 3. We will request an extension, and if we do not get that, we are able to attraction it. I feel we’re simply going to comply with what’s been specified by the 8-Ok and as any data adjustments, we are going to talk that.
Adam Lowensteiner
Nice. Thanks. That is it from me.
Operator
[Operator Instructions]. And this may conclude our question-and-answer session. I might like to show the convention again over to Kyle Loudermilk for any closing remarks.
Kyle Loudermilk
All proper. Effectively, I might identical to to thank everybody for becoming a member of us. We recognize your time and curiosity in GSE. You probably have any questions, please attain out to Adam Lowensteiner from Lytham Companions and we might be pleased to schedule up a follow-up name. As soon as once more, thanks, all people, and have an awesome day.
Operator
The convention has now concluded. Thanks very a lot for attending in the present day’s presentation. It’s possible you’ll now disconnect your traces.
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