GSE Systems, Inc.

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 one on your touch tone 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 Lithium Partners. Please go ahead.

Thank you, Danielle, and good afternoon, everyone. 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. 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. 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're encouraged to read GSC'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 the squall 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. 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 the SEC Regulation G, can be found in the company's earnings release. 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. I'd like to welcome everyone to GSE's first quarter 2024 Financial Results Conference call, and my first conference call as 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.gscs.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. Before I begin my formal comments, I would like to personally and sincerely thank my predecessor, Kyle Loudermilk, for leading GSE to this point in 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. A little bit about myself. Prior to my appointment as President and CEO, I was GSC's Senior Vice President of our Systems and Simulation business, a critical contributor to GSC's operations and role in the industry. I joined GSC in 2016 and I'm clocking in over 20 years of experience in the field of engineering services and software technology solutions. I hold a Bachelor's of Science in Chemical Engineering from the University of Maryland, a Master's in Computer Science from John Hopkins University, and an MBA from the University of California, San Diego. So I come to the C-suite armed with a diverse background and education that should meet the needs of GSC along with boots on the ground experience working within this company. I want to publicly congratulate and welcome Damien DeLongchamp as GSC's new Chief Operating Officer. Prior to being appointed COO, Damien was the Vice President of GSC's Engineering Program and Performance Business Unit. Damien 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 industries and specializes in regulatory codes and compliance and 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 with the industry which is demonstrated by the key wins he continues to drive for the business. Congratulations, Damien, and looking forward to working with you in this new, exciting role. First, a brief update on the industry. 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. Meeting 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. Also affecting the demand for power are newer technologies that utilize data centers, and these high compute environments are actually causing the rollout of many more 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. 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. 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 Daminin also cited that according to McKinsey & Company, in the U.S. alone, data center demand is expected to reach 35 gigawatts by 2030, up from 17 gigawatts in 2022. In order to power these massive data centers, nuclear power becomes 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 is that piece of the puzzle to meet these demands. But how will power companies keep up? As we've expressed in the past, we believe in the near term that 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. 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. 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. The facility's first unit has been operating since 1977, and the thrust of this rule 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 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 recognition of existing assets by restarting shuttered facilities in the near term and bridging them to the future with newer technologies and capabilities, like SMRs. Holtec has its own SMR design, which is currently being reviewed by the NRC, and the company is planning to commission them at one of their sites by 2030. 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. 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 and capitalize on these new technologies as they emerge. 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 program 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 to the entire plant development and software development DevOps lifecycle. As SMRs evolve, be well assured that GSE is prepared to work with many SMR developers in the marketplace and assist them in 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 and surface. 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 through leveraging all of GFC has to offer through simulation technology, design engineering services, and engineering programs. Now for some perspective on GFC's business in Q1 of fiscal year 2024. The first quarter was a solid quarter with regards to new orders and revenue. 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 2023. 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. The timing of orders demonstrates the nature of the current market. Cautious customers 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 super cycle that is now in the process of ramping up. 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. In addition, services provided were diverse, but most involved in nuclear industry. A couple key one wins worth highlighting are a $6 million order for our continued simulation support of a US 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. 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 experienced 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. 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. 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. 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. The nuclear industry is evolving and gaining much momentum on a global basis due to key tailwinds that include a pathway towards decarbonization and high demand of the electrical grid. Our business pipeline continues to remain strong, and while we can't control 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. 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 in the breadth of services and value we offer them by using GFC. I believe that GFC is well prepared to help these companies improving their facilities, and the company is positioned to move quickly when opportunities arrive, enabling our customers to get more value out of their budgets. 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 GFC in the best position on the field to compete with the vendor of choice and amongst our customers. I am proud to lead GSC to 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. I'd like to personally thank all of our GSC 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 GSC forward as one team and as a value-added platform to our customers. I will now turn the call over to Emma Pepe. GFC's CFO, who will review the financial results for the first quarter of fiscal 2024. Emmett, please proceed.