GSE Systems, Inc.

Good afternoon and welcome to the GSE Systems, Inc. Third Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, all participants will be in a listen only mode. Should you need assistance during today's call, please signal for 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 one on your telephone keypad. If you would like to withdraw your question, please press star then two. And please note that today's event is being recorded. At this time, I would like to turn the conference over to Adam Lowensteiner, VP of Lithum Partners. Please go ahead, sir.

Thank you, Chris, and good afternoon, everyone, and thank you all for joining us today to review the financial results for GSE Systems for the third quarter ended September 30, 2022. With us on the call representing the company today are Kyle Loudermilk, 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 the 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 and Section 21E of the Securities Act of 1934. These statements reflect current expectations concerning future events and results. Words such as expect, intend, believe, may, will, should, could, anticipate, and similar expressions are words that are used to identify forward-looking statements, but their absence does not mean a statement is not forward-looking. These statements are not guarantees for future performance and are subject to risks and uncertainties and other important factors that could cause actual performance or achievements to be materially different from those projected. For 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 forward-looking statements and risk factors section. GSC 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 generally accepted accounting principles or GAAP. Management believes that these non-GAAP figures, in addition to other GAAP measures, provide meaningful supplemental information regarding the company's operational performance. Investors should recognize that these non-GAAP figures 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 on the company's earnings release. With that said, I'd like to now turn the call over to Mr. Kyle Loudermilk, President and Chief Executive Officer of GSE Solutions. Kyle, please proceed.

Thank you, Adam. I'd like to welcome everyone to GSE's third quarter fiscal 2022 financial results conference call. Earlier today, we issued a press release detailing our financial results. Hopefully, you've had a chance to review this news release, but if not, a copy can be found on our website at www.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 GSE's business in the quarter across all the lines of business, and provide a summary of our focus on sales and revenue generation. Emmett will review the financial results and will conclude with the Q&A session. First, a brief update on the industry. While keeping my remarks brief, I do want to note some key positive developments in the nuclear industry since our last call. The first piece of recent news that I'd like to highlight is the recent acquisition of Westinghouse Electric by Brookfield Renewable Partners, one of the world's largest clean energy investors, and Kimiko, a major supplier of uranium. The $7.9 billion deal reveals that these two major players believe that the nuclear energy sector has a long and growing future. Nuclear energy is becoming increasingly important in a world that prioritizes electrification, decarbonization, and energy security. This deal also demonstrates that investment activity in the sector is clearly picking up. In the U.S. nuclear fleet, we are seeing more existing facilities file for operational extensions. Most recently, Vistacorp submitted an application to the NRC to renew its license for the Comanche Peak Nuclear Power Plant in Texas through 2053 or for an additional 20 years beyond its initial license. More plants in the U.S. will follow. GSE is well-positioned to benefit from this industry activity, as illustrated by our announcement in early October of our expanded service offering specifically designed for nuclear power plant life extension services. Small module reactors, or SMRs, continue to make significant strides towards commercialization. Very recently, the NRC has indicated that it will certify NuScale SMR reactor for use in the United States. As many of you already are aware, NuScale is a long-term partner of GSE, as we have been working with them for over 10 years in helping them with their development of SMRs. We are very excited for this relationship and the potential it offers in the future. Overseas, subsequent to last quarter's conference call, South Korea announced their intention to increase production of nuclear energy to nearly one-third of its energy mix, up from a current 24% by 2030. On the heels of this news, GSE announced a new contract to implement a digital twin design simulation system for a longtime customer in South Korea. South Korea has been an important market for GSE, and this new contract highlights GSE's prominence in the region with unique services and technology. Shortly after our last quarterly conference call, Japan officially announced its intentions to restart its nuclear reactors, which is a piece of great news for the industry and GSE. GSE has conducted business in Japan for decades, and I'll be traveling there soon to meet with GSE customers and partners as Japan begins the long-term restart of its nuclear assets. In summary, the macro outlook for the nuclear energy industry continues to remain strong. Global awareness of the importance of nuclear power for energy security, environmental equity, and grid reliability is driving further action to sustain existing nuclear power fleets, produce more power from those assets, and accelerate the path towards adoption of next-generation nuclear power technology. We feel that the industry is entering a major cycle of long-term investment for growth, likely to be sustained for decades to come, barring any major disruptions. Now for some perspective on GSE's business in Q3. Overall, the third quarter produced improved results compared to the prior quarter. We were able to improve our order flow, and I do want to highlight that during the third quarter, gross orders were at $12.2 million and offset by roughly $2 million in order reversals for unused backlog and completed projects. While we usually don't focus on reporting a gross order figure, I wanted to share the figure as it demonstrates the extent of our order flow. This is much improved from the second quarter as we are starting to see customers increase their engagement in project activity. Emmett will get into specific numbers during his remarks later in the call. Performance Engineering Division had a solid quarter. We continue to win new business, and we are especially pleased with the strong license revenue of $2 million in the quarter. This is the result of our deliberate strategy of packaging and licensing our simulation technology and the resulting industry adoption of these solutions for significant value add. This is great to see. Our license revenue business is now a material and growing part of our business, delivering sticky, high-margin revenues. The solid performance of the Performance Engineering Division, including the strong license revenue in the quarter, helped improve our gross margins both year-over-year and sequentially. In our workforce solutions business, we continue to bring in new orders, and we have highlighted via a recent press release the 3 million combined orders from a client in the southern United States for both workforce solutions and performance solution services. This demonstrates that our cross-selling of our solutions to the industry is gaining traction. For workforce solutions, we continue to retool and focus investment on revenue generating positions as this business emerges from industry slowdowns related to the pandemic and the ongoing economic uncertainty. Now I'd like to discuss our focus on sales and revenue generation. As the company and the industry we serve emerge from the pandemic and deal with the current economic uncertainty, our focus is on getting the sales and revenue generating dimensions of our business built out and as productive as possible. Sales consists of individuals that engage with our customers and prospects to build a pipeline of opportunities and convert those opportunities into orders that will convert to revenue as work is performed and or as solutions are delivered. Revenue-generating positions are billable engineers and other professionals who convert orders to revenue through their work. Finding, attracting, and retaining top talent is an acute challenge in this industry and in this economy, and GSE is not immune to this challenge. We are focused on what is in our control. To address this need, we have brought on new recruiters whose sole job is to find the people with the right skills to specifically fill a sales position and fill revenue-generating positions such as billable engineers. This is a constant and ongoing process. We review candidates and have been effective in filling open roles created by new business, as well as those openings that are a result of turnover. Finding good people is never easy, but we are addressing this challenge. I will note that having found a great sales addition earlier in the year to focus on licensed revenue products is starting to yield nice results as this quarter demonstrates. We also have a strong pipeline of new opportunities as a result of this investment. What is also in our control is ensuring we are focused on meeting with customers in person to develop new business. Our most recent Board of Directors addition has been instrumental in opening new doors for us to meet with key executives in the nuclear industry who are responsible for the budgets and decisions that matter to us. Myself and other top executives are hitting the road, meeting with these leaders, promoting GSC's solution, listing for areas of opportunity where we can deliver value for the customer, and generate business as a result. We currently just have a few business development staff for engineering, but what is clear is that finding a full-time sales leader who's credentialed and well-connected at client executive levels is a critical need for us and a top priority. We have a retained search underway for this position in engineering sales. This will take time to fill, and it won't be easy. As I mentioned, we are on the road engaging with key individuals to promote GSE to build the business. Consistent feedback is that at this level of customer, the GSE story is new to them, and they're glad to learn that we do so much more than the legacy simulation business for their respective companies. There is opportunity, and we're going after it. For workforce development, we have been busy since early in the year to cycle in key salespeople. We have four sales business development people now in place for workforce development with three having been introduced since the start of the year. These salespeople win contracts that enable us to fill open recs for customers. To support these salespeople, we have seven recruiters, six which were hired during this year, in place to submit the CVs of our staffing field professionals to customers for selection to fill the open recs. Thus, having a salesperson paired with a recruiter are both essential parts of the revenue generation for workforce development. We have excellent bids in place with significant customers and are working to win more contracts and fill the roles associated with those contracts once awarded. To summarize, we've made good progress in the third quarter. Strong license revenue accompanied by improved orders and bookings are the result of getting out in front of customers and being aggressive to win business that is available, while setting the stage to capture more business as industry spend recovers. We are focused on targeting investment in revenue-generating positions and activities for the business. The team is highly motivated, taking ownership of what we control, and we are moving forward. The many exciting developments in the nuclear industry right now continue to make me feel very confident about GSE's future. I'll now turn the call over to Emmett Pepe, GSE's CFO. He'll review the third quarter financial results. Emmett, please proceed.