GSE Systems Inc (GVP) 2004 Q2 法說會逐字稿

Welcome to the GSE Systems Inc. second-quarter 2004 results conference call. At this time, all participants are in a listen-only mode. If you have questions at any time during or after the presentation, please e-mail them to gsecall@gses.com. (OPERATOR INSTRUCTIONS) Please include your name and affiliation on your e-mail. The questions will be addressed at the conclusion of the presentation. I would now like to turn the program over to Ms. Andrea Kantor, Vice President and General Counsel for GSE Systems Inc. Please go ahead, Ms. Kantor.

Good morning, everyone. I'm Andrea Kantor, the Company's General Counsel. I would like to welcome you to our second-quarter conference call. For your information, as the moderator just announced, a question-and-answer session will be held at the conclusion of John Moran's presentation. We will endeavor to respond to as many questions as time permits after John's presentation.

I would like to begin by reading a short statement. These forward-looking statements reflect GSE's management's current views with respect to future events and financial performance that involve certain risk and uncertainties. We use words such as expects, intends and anticipates to indicate forward-looking statements. The actual future results of GSE may differ materially due to a number of factors, including, but not limited to, delays in introduction of products or enhancement, size and timing of individual orders; rapid technological changes; and market acceptance of new products and competition.

These and other factors are more fully described in GSE's annual report on Form 10-K for the year ended December 31, 2003, periodic reports and registration statements filed with the Securities and Exchange Commission. If any one or more of these expectations and assumptions proves incorrect, our actual results will likely differ materially from those contemplated by our forward-looking statements. Even if all of the foregoing assumptions and expectations prove correct, actual results may still differ materially from those expressed in the forward-looking statements as a result of factors we may not anticipate or that may be beyond our control.

While we cannot assess the future impact that any of these differences could have on our business, financial condition, results of operations and cash flows, or the market price shares of our common stock, the differences could be significant. We do not undertake to update any forward-looking statements made by us.

Now I would like to introduce John Moran, the Company's Chief Executive Officer.

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Hello? I'm assuming I'm live now. I apologize for that technical difficulty. Let me start all over.

Good morning and thank you all for joining GSE's second-quarter 2004 results conference call. With me this morning from our Columbia, Maryland headquarters office are Jerry Jen, GSE's President and Chief Operating Officer; and Jeff Hough, our Chief Financial Officer.

As noted in our press release, over the course of the second quarter, we continued to execute our business plan. As we discussed with you last quarter, this includes three basic components. First, to return the Company to profitability. Second, to extend our simulation capability into the fossil electric power industry, the process industries and into the U.S. government's military complex. And third, to develop common processes and systems that we can use across our entire enterprise. I'm pleased to report that we continue to make good progress on all three components.

For the second quarter of 2004, GSE had revenues of $7,597,000, which compares favorably to revenues of $5,545,000 for the second quarter of 2003. For the six months ending June 30, 2004, the Company had revenues of $15,158,000, which also compares very favorably to $10,520,000 for the same period in 2003. For the second quarter of 2004, pretax income from continuing operations was $333,000 versus a loss of $497,000 in 2003. For the six months ending June 30, 2004, GSE had pretax income from continuing operations of $414,000 versus a loss of $710,000 for the same period in 2003. The Company exceeded its revenue and net income goals for the second consecutive quarter, and we also remained debt-free throughout the quarter with zero bank borrowings.

The backlog at the end of June stood at $22,700,000, but increased in July for the first time all year, to $25,400,000. We expect to continue to build this backlog over the course of the third quarter. Recall that we thought it would take about six months for the business development program to take hold, and hopefully the increase in backlog is a reflection of this.

Our pipeline of opportunities continues to grow in both magnitude and, more importantly, in diversity. It now stands at over $150 million, with almost 50 percent of the pipeline growth in the second quarter coming from the fossil power, process and government sectors.

Relative to the government sector, very significantly within the next two weeks, we expect to deliver our first major U.S. military proposal. Teamed with ManTech and eight other companies, we are proposing to maintain and upgrade simulators for the U.S. Navy worldwide. Win, lose, or draw, we are now tapped into the government simulation procurement process and understand what it takes to bid these very, very large military simulations.

Also, on the homeland security front, our real-time emergency management interactive training simulator, or REMITS for short, was installed this past Sunday at the Port Authority of New York and New Jersey in their emergency operations center. On Wednesday, the simulator was used in exercises designed to prepare emergency responders for potential Port Authority threats associated with the upcoming Republican National Convention. We consider this a bet a test site, and if all goes well, we will begin selling the REMITS simulator nationwide.

Lastly, in the area of common systems and processes, we completed our ISO 9001 pre-audit review. We have a number of areas for improvement and we been working on them over the course of the quarter. The full audit will begin on August 31st, and hopefully by the time we get together again, I will be able to report that GSE is ISO certified in the Columbia office.

So in summary, I'm satisfied with our progress to date at GSE and I think we're making some good progress and building some good momentum in the marketplace. This concludes my remarks on the Company's second-quarter results and the Company's update. At this time, I can entertain any questions that you might have. So please stand by for the first question.

Our first question is from Bruce Zipper (ph), Newbridge Securities. My question is this -- are there any potential contracts that GSE has bid on recently that if won, would have a significant change in the Company's revenues? And if the answer is yes, could you speak to us about what they are.

Bruce, we are tracking at least 20 what we consider to be high-impact opportunities, any one of which would have a substantial increase to our revenues. This is a part of our business development program, and that is to identify these high-impact opportunities, put executives on the closure team and then hopefully close them.

I'll give you a cross-section of some of them. We are putting together a team to build a training center in Kuwait and in other Middle Eastern countries. We're bidding a full-scope nuclear simulator in Finland. We are putting together a bid -- or in fact, have already bid on a major fossil power station in Saudi Arabia. We bid on a Shell Oil gas-to-liquid conversion plant. We are putting together -- we have just received the specs and are putting together our bid on a Russian transmission and distribution grid simulator. So we have many high-impact opportunities; that's just a cross-section of them.

The next question, again from Bruce Zipper, Newbridge Securities. Is the Company looking for other companies to partner with using GSE's expertise and combining it with another company's strength to increase revenues?

Well, of course, as I mentioned in my remarks, that indeed is the central strategy for tackling the government military complex. We are relatively new, although not completely new, to that particular area, and what we been able to do is partner with firms that have established relations and people on the ground at the Navy bases. So a major piece of our strategy, again, for going after the government side, is indeed teaming with partners.

But in two other areas in the process industries, we are contemplating a strategic partnership with a company that has a series of models of process -- primarily refining models -- that would be very helpful to us and we are engaged in discussions there. And then finally, we are looking for or seeking an implementation partner in the Middle East, and I'll be traveling to Kuwait City in the next two weeks, hopefully to sign a strategic partnership with a company called Alganem (ph), which I'm led to believe is one of the third largest companies in the entire Gulf region. Under this arrangement, GSE, of course, would provide simulation and Alganem would provide local implementation.

The next question is from Joe Viddich (ph). Could you provide more detail on your backlog and a breakdown of its source, domestic versus international, government versus private sector?

The answer is we are about 50 percent domestic, about 50 percent international. In terms of government and private sector, we are about 22 percent government and 78 percent private sector right now.

We don't have any further questions just yet. I'll keep the lines open for a few more moments in case someone is typing a question in now.

We just checked -- there are no other questions. So I'll close by thanking you all for your participation and I look forward to discussing our next quarter with you shortly. Thank you.

That concludes today's call. You may disconnect the line at any time.