GSE Systems, Inc.

Good afternoon, and welcome to the GSE Systems Reports fourth quarter and fiscal year 2022 financial results conference call. All participants will be in a listen-only mode today, and should you need any assistance during the call, 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 one on your telephone keypad. And to withdraw a question, please press star, then two. We ask that you please limit yourself to one question on today's call. Please note that this event is being recorded today. I would now like to turn the conference over to Adam Loewenstein, Vice President at Lithium Partners. Please go ahead, sir.

Thank you, Joe, and good afternoon, everyone. Thank you all for joining us today to review the financial results for GSE Systems for the fourth quarter and fiscal year ended December 31st, 2022. With us on the call representing the company today are Kyle Loudermilk, President and CEO of GSC Systems, and Emmett Pepe, Chief Financial Officer of GSC 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. These statements reflect current expectations concerning future events and results. Words such as expect, intend, believe, may, will, should, could, anticipate, and similar expressions are words that are used to identify forward-looking statements, but their absence does not mean a statement is not forward-looking. These statements are not guarantees of future performance and are subject to risks and uncertainties and other important factors that could cause actual performance or achievements to be material or 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 the 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 or 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. With that, I'd now like to turn the call over to Mr. Kyle Loudermilk, President and Chief Executive Officer of GSE Solutions. Kyle, please proceed.

Thank you, Adam. I'd like to welcome everyone to GSE's fourth quarter and fiscal year 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 first with a brief update on the industry, then discuss GSE's business in the quarter and fiscal year across our lines of business, and finally provide a summary of our focus on sales and revenue generation. Emmett Pepe, our CFO, will review the financial results and will conclude with a Q&A session. So first, a brief update on the industry. As I'm sure many of you have seen, the nuclear industry is in the early stages of what promises to be a long-term resurgence. Nuclear power is being universally recognized as a critical energy source for national security and achieving carbon reduction goals. Both conservative and liberal political parties support the emerging renewal of nuclear power. Countries in Eastern Europe are actively planning for building traditional reactors and SMRs. In the United Kingdom, there has been discernible progress to advance the development of SMRs as well as potential new builds of traditional reactors. As we've discussed, either way, the path to consistent and clean power is through nuclear. In the United States and Canada, significant planning is underway for projects that will extend the lifetime of existing facilities undertake capital investment to produce more power from those facilities, and we have seen announcements regarding advancing construction of SMRs, most notably from NuScale and GE Hitachi. The recent startup of the Vogel III nuclear reactor in Georgia is the first nuclear reactor to go critical in seven years in the United States, and the first new build in 30 years. Unit 3 is expected to come into full service over the next few months, and Vogel Unit 4 is nearing completion and expected to start up early next year. This is a great achievement for Southern Company and for the industry. As I mentioned, another area of focus for the industry is applying for license extensions for existing nuclear reactors. Due to recent legislation, including the Inflation Reduction Act, there are now more incentives to keep these facilities operational and invest in them to produce more power through capital improvement. The IRA has offered the nuclear industry a path to generate a reasonable return to produce the consistent and clean power from nuclear going forward. The funding is meaningful and has helped transition the mindset of facility operators from considering shutting down five years ago to maintaining, upgrading, and extending the lifetime of the plants. As an example, Xcel Energy's North States Power in Minnesota recently applied for a 20-year operating license extension for its Monticello reactor, which currently runs through 2030. This would be the facility's second 20-year extension, and if granted, we keep the facility open through 2050. Most facilities are granted an initial lifespan of 40 years and then can apply for extensions, usually in 20-year increments. So far in the United States, six nuclear plants have received extensions to reach 80 years, and an additional 25 have applied for or have indicated that they will be seeking license renewals. All these facilities will require significant engineering work for programs, maintenance, and capital improvements to continually extend the operations of those plants. and over time likely apply to reduce more power given the incentives in place to do so. So looking forward, the industry also continues to focus on next generation reactors known as small modular reactors or SMRs. There's lots of investment in industry to make SMRs a reality in the years to come. As the industry moves towards the commercialization of SMRs, GSE remains a key partner for the industry and ready to help in delivering SMRs to the marketplace. As many of you are already aware, NuScale, a publicly traded company under the ticker SMR, is a long-term partner of GSE, and we've been working with them for over 10 years in helping them with their development of SMRs. We announced during the fourth quarter and early this year the contracted work we have won to help them develop a hydrogen plant model for their Voyager SMR. Hydrogen will be a critical fuel for the energy transition that has begun, and it is very exciting for us to be involved at the front end of this transition. The macro outlet for nuclear energy industry continues to remain strongly positive. 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. While it takes significant time for the industry to move through the planning process to project execution and spending, We feel that the industry is entering a major cycle of long-term investment and growth, barring any major disruptions. Now for some perspective on GSE's business in Q4 and fiscal year 2022. Fiscal 2022 is a transitional year for GSE. We had to make key changes in investments to position the company for future opportunities, all the while keeping a lid on overall costs and remaining as lean as possible. While the company's performance needs to improve, we have entered 2023 having retooled key components of the business and with some key wins and momentum. Looking at the fourth quarter, it was a solid showing considering we were expecting better order flow and experienced some slippage into the first quarter. This has pushed things to the right, but the good news is that the business that slipped from Q4 did close in early Q1, and we were starting to bid on more opportunities. The company's performance engineering division continued its charge during the fourth quarter and fiscal year. Revenues for the fiscal year climbed 6.3% for the division, approximately to $30 million, led by systems and simulation. The solid performance of the performance engineering division included strong license revenue, which helped improve our gross margins year over year and sequentially from the third quarter. We continue to win new business in this division. Project order flow in the quarter was lower than expected, but as mentioned, that was primarily the result of key orders slipping from Q4 into early Q1 in 2023. Despite this, we recorded important wins during the quarter, primarily for simulations and systems services, as well as for programs and performance services. A major deal that closed in early Q1 is the renewal contract that includes a meaningful expansion of services with two U.S. government engineering laboratories dedicated to the support of the US Navy. This is a five-year contract that has options to make it worth up to $28 million over that time. GSE has been under a series of service contracts with these laboratories for over 20 years, and this renewal is a testament to the strong relationships we have created with these laboratories and the services delivered to them over that time. We are proud to serve the mission of these important national assets. Another important award that slipped from Q4 to Q1 was a new contract in partnership with a nuclear fuels technology and services supplier to support a large US-based utility with new engineering program services to support a 24-month fuel cycle operation project. Moving to a 24-month fuel cycle from a more typical 18 months is not an easy task, but when accomplished, can help the operator make the plant more efficient and create major cost savings. We are excited about this win as it also shows the breadth of the capabilities GSE can offer customers while positioning us as a leader as we work to win similar opportunities with other operators and plants moving forward. Another significant win is the recent announcement of the upgrade of the training simulators at the Okiluoto Nuclear Power Plant in Finland. This contract, which is worth nearly $900,000, is expected to deliver key new capabilities for TVO once completed over the next two years. I'm really excited about these wins, and they are an excellent cross-section of the credibility we built in the industry and the types of different offerings and services only we can uniquely offer to the industry. Moving to our workforce solutions business, it's been a challenging year, and the results demonstrate the issues we've had to overcome. Revenue was 3.3 million for the fourth quarter and 17.8 million for the year, both lower on a year-over-year basis. That said, we've been extremely busy retooling the division during 2022 and have made significant progress in rebuilding the sales and recruiting teams for this business. We're currently in the midst of turning around the division and are starting to see early returns on the investments and improvements we've made. While there's more work to be done, a major positive was that during the fourth quarter, we did see new order flow improve from the third quarter. Now I'd like to discuss our focus on sales and revenue generation. While revenues weren't at our historic levels, this was due to customers remaining in the planning versus the execution stage for capital spending on their facilities. It's frustrating. And as a result, we're still eager for spending to recover to pre-pandemic levels. GSC was busy, however, during the year to make certain changes and investments and put the company on better ground with retooled capabilities and with new talent. Our most recent announcement on this front has been the hiring of Ray Ruby as our new head of sales for the company. As I mentioned on prior calls, GSE was in need of a new head of sales, and finding that right person would take some time. We're delighted to have Ray on board. He brings over 40 years of experience in nuclear and deep industry relationships for project engineering into our company. He's begun to get us in front of companies at executive levels to get GSE known at that level and to put us in a prime position as capital spend for engineering services starts to improve. So to summarize, we've made good progress during the fourth quarter and fiscal year, continued strong license revenue accompanied by recent improved orders and bookings, other result of getting out in front of customers and being aggressive to win the business that is available to us, while setting the stage to capture more business as industry spend recovers. We're focused on targeting investment and revenue-generating positions and activities. The team's highly motivated, taking ownership of what we can control, and we're moving forward. The many exciting developments in the industry right now continue to make me feel confident about our future. I'll now turn the call over to Emmett Pepe, GSE CFO, who will review the fourth quarter financial results. Emmett, please proceed.