GSE Systems Inc (GVP) 2004 Q3 法說會逐字稿

Good day. All sites are on the conference line in a listen-only mode. I would now like to turn the conference over to GSE's General Counsel, Ms. Andrea Kantor. Go ahead please.

Good morning, everyone. I'm Andrea Kantor, General Counsel of GSE Systems. I would like to welcome you to the GSE third-quarter 2004 conference call. For your information, a question and answer session will be held at the conclusion of John Moran's presentation. Participants can e-mail questions at any time during the presentation to gsecall@gses.com. I would now like to make a brief statement.

The forward-looking statement reflects management's current views with respect to future events and financial performance. We use words such as "expects", "intends", and "anticipates" to indicate forward-looking statements. Our actual future results may differ materially due to a number of factors, including, but not limited to delays in introduction of products or enhancements, size and timing of individual orders, rapid technological changes, market acceptance of new products and competition. These and other factors are more fully described in our 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 1 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, our 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 flow or the market price of shares of our common stock, the differences could be significant. We do not undertake to update any forward-looking statements made by us.

Once again, the e-mail address for submission of questions is gsecall@gses.com. We will endeavor to respond to as many questions as time permits after John Moran's presentation. Please remember to indicate your name and affiliation with your questions.

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

Good morning, everyone, and thank you for joining GSE's third-quarter 2004 results conference call. Joining me here in Columbia this morning is Jeff Hough, our Chief Financial Officer. Jerry Jen, our President and Chief Operating Officer, is on assignment in Sweden.

We'll start with our financial results. Revenue for the quarter ended September 30, 2004 totaled $7.3 million, which is 19.6 percent higher than the 6.1 million for the quarter ended September 30, 2003. For the same 9-month period of the year, revenue was $22.5 million versus 16.7 million for the same period in 2003.

In terms of net income, the Company produced a $137,000 loss for the third quarter of 2004 compared to a $696,000 loss for the same period in 2003. For the 9 months ended September 30 2004, net income is 203,000 versus a $2.4 million loss for the same period in 2003. It's important to note that the Company would have produced a positive net income for the third quarter, but we made adjustments to the estimated cost to complete a number of long-term projects. This resulted in a net reduction of the project-to-date revenue and gross profit recognized on those projects of approximately $288,000. To avoid this problem in the future, we've completed a complete independent financial review of all of GSE projects, and we've instituted better controls, including a monthly review of all the project conducted by a joint operational and financial team. We're also in the process of recruiting an additional financial manager to support Jeff Hough, our CFO, in this area.

We ended the quarter with a backlog of $19.5 million. The backlog currently stands at 22 million, and we expect to close the year with a backlog of approximately 25 million, so some improvement there. In the marketplace, however, our customers continue an unfavorable trend which began a little earlier this year, and that is to delay or cancel plans for building simulators. This is particularly the case in the US, Great Britain, and most particularly in Japan, which provides most of the work for our office in Sweden. Despite this, projects in the pipeline with a probability of 50 percent or greater total over $31 million and those with a probability of 70 percent or better total over $21 million. It should also be noted that at any given time roughly 15 percent of our backlog consists of what I call outliers. These are jobs that never make it to the pipeline that go directly into the backlog. So taking everything into account, while I'm concerned about the backlog, we don't feel that any major shifts in our growth strategy are called for.

From a cash prospective, we remained debt free throughout the quarter and had 0 bank borrowings.

On some positive notes, the Company recently signed an agreement with the Shanghai Automation and Instrumentation company to penetrate the Chinese power and process marketplace. There will be over 30 nuclear plants built in China over the next 20 years, and a relationship with Shanghai automation will be key to our participating more fully in this marketplace. Also, we received our first award in Homeland Security for the REMITS simulation system from the government of Indonesia. We have also been advised by our registrar that we will be receiving our ISO 9000 certification. Recall that was 1 of the key goals for the Company. Finally, we responded to 6 RFQs in the government military sector, again 1 of our growth strategies. So there are some encouraging signs coming from our growth areas.

In closing, I remain confident in our growth strategy and our ability to execute it. Also, I want to apologize for not being as responsive to your phone calls as I usually am. As you can imagine, we've had a very busy past few weeks.

I'll open it up for questions now.

So far there's no questions. We will stand by for a few more minutes.

Okay, there appears to be no questions. I look forward to addressing the shareholders again next quarter. Thank you very much.