GSE Systems Inc (GVP) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the GSE Third Quarter Conference Call. [Operator Instructions] Parties who are interested in listening to the rebroadcast may dial 866 430 1300, or 404 260 1414 and when prompted enter the PIN 48004300#. At the system prompt, dial 4 to listen to a previously recorded conference. When prompted, enter the confirmation number 20051109252494, followed by the # sign. The rebroadcast will be available through December 10th, 2005. [Operator Instructions] Without further ado, it is my pleasure to turn the floor over to Mr. Jeffery Hough. Mr. Hough, the floor is yours.

Thank you. Before John Moran's remarks today, I will begin by reading a short statement. The forward-looking statements reflect GSE Systems 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. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, all of which are difficult to predict and many of which are beyond the control of GSE Systems, including, but not limited to, our inability to generate funds, failure to continue to attract and retain personnel, loss of business from significant customers, failure to keep pace with technology, changing economic conditions, competition, and those other risks and uncertainties detailed in GSE Systems periodic reports and registration statements filed with the Securities and Exchange Commission. If any one or more of these expectations and assumptions proves incorrect, actual results will likely differ materially from those contemplated by the 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 o that may be beyond our control. While we cannot assess the future impact that any of these differences could have on our business - financial conditions, results of operations, and cash flows, 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.

Now I would like to introduce John Moran, the company's CEO.

Thank you, Jeff. Good morning, and thank you for joining GSE's Third Quarter Investors Conference Call. First, I'd like to address the financial results for the third quarter, and then describe our strategic business development plans, as we position ourselves to take advantage of some very exciting trends in the worldwide power markets.

From a financial perspective, as reported yesterday, revenue for the three and nine months ended September 30t, 2005, totaled $4.6 million and $17.6 million, respectively. This compares to $7.3 million and $22.5 million for the comparable periods in 2004. The company's net loss was $1 million in the third quarter of 2005, and the net loss for the nine months ended September 30 2005, totals $2.6 million. This compares with a net loss of $137,000 in the third quarter and a net income of $203,000 for the nine months ended September 30, 2004.

Contract backlog for the company at September 30, 2005, was $13.9 million, down slightly from $14.6 million at the end of the second quarter. As noted in yesterday's press release, the company's revenue and profitability continue to be impacted by lower order volume in 2005. A number of major awards in the third quarter have been deferred, and we expect to close these in the fourth quarter. In fact, over the last two weeks, we announced a number of significant awards and expect that trend to continue throughout the fourth quarter.

We also took several steps to improve our long-term financial position that impacted the third quarter. Among these, we moved our headquarters from Columbia, Maryland, to office space we had available in Baltimore, Maryland, and we have now negotiated a very favorable lease assignment for the Columbia space, which may go into effect as early as December of this year, but no later than February 1st of 2006. In facility costs alone, this will save the company over $1 million per year. It did require us, however, to write down some leasehold improvements from the Columbia facility and this impacted the third quarter.

We also formed an alliance, as previously announced, with Atlanta Systems to pursue the military simulation market. This allowed us to significantly reduce our business development costs in that area, which, along with some other personnel cost-cutting measures, resulted in additional severance costs for the third quarter.

And then finally, we announced that GP Strategies completed the spinoff of its 57% ownership interest in GSE through a dividend to its stockholders. There were substantial legal costs associated with that transaction and that also impacted our third quarter.

In total, over the last 12 months, including the third quarter reductions, the company has reduced its operating expenses substantially on an annual basis. Virtually all of these reductions will be in place by January 1st, 2006.

From a cash perspective, the company closed the quarter at $804,000 in cash and cash equivalents. That, together with the Wachovia credit facility, provides sufficient working capital for the company. As noted previously, we've made substantial reductions in cost, and that, together, with a number of favorable project milestones, should result in the company being cash neutral to slightly positive for the remainder of the year. We are also currently evaluating a number of alternatives to raise additional cash for the company, and I hope to be able to make a recommendation to the Board of Directors on this before the end of the year.

I'd now like to discuss the new GSE, a freestanding, independent company that's making dramatic changes to address the growing nuclear and training marketplaces.

As most of you know, we are at the forefront of a nuclear renaissance in the United States as well as globally, and the company has developed a three-part approach to capitalize on this market. First, our strategic focus is the nuclear services business, particularly in the U.S. nuclear market. U.S. plants are extending their useful life and as a result are seeking increased simulation and training services. The operating licenses for 32 of the 104 operating reactors in the United States are scheduled to expire over the next several years. A total of 47 plants have already applied for license extensions. As these plants renew their licenses, they also plan significant upgrades to the physical plant and to the control room technology. Both of these will result in the need to upgrade their control room simulators. For those of you who are new to the company, GSE has the largest installed base of existing simulators in the U.S. as well as in the world, estimated at over 65%. This puts us in an excellent position to capture a large portion of this research and upgrade and services market. We announced last week $3.6 million of new business and over $3 million of that is derived from providing services and licenses to our installed base. Last year, our services business accounted for approximately $7 million in revenue, and in 2006, we anticipate a significant increase.

In line with this growth in the services business, the company is also offering new and unique testing and simulator validation services as well as new training technologies. These new services were recently announced to our customers at our annual Sim World Users Conference that was held in Charleston, South Carolina. It was attended by approximately 60 of our customers.

Earlier this week, we announced the launch of our new classroom simulation product line, with a contract award of over a half a million dollars from the Mexican utility CFE. The classroom simulator allows students to train on the same high-fidelity simulation models that we use for the full scope control room simulators without the need for expensive control panels. This product doesn't replace our full-scope simulation business, but in fact augments the business by providing a highly flexible simulation tool with self-paced training. It allows operators, maintenance personnel, and engineers the opportunity to practice under very realistic conditions, in a classroom, without the need to occupy the full-scope simulator. This is the beginning of a whole new product line for us and we expect significant growth in this area next year.

Our second strategic focus is capitalizing on the global nuclear renaissance. We've been very active in China, where over 40 nuclear plants are expected to be constructed over the next 10 years. These plants will utilize advanced Western PWR, or Pressurized Water Reactor, technology, and there's only two firms that offer this technology, [Framatone], a division of Ariva, in France, and Westinghouse's AP 1000 Reactor Plant. Under an agreement previously announced, GSE will be the simulator vendor for the first six Westinghouse AP 1000 awards. The AP 1000 is currently in contention for two plants in China, both of which are expected to be awarded by the end of the year. Beyond China, new plants are being planned for Slovakia and Bulgaria over the next few years, markets which the company is exceptionally well-positioned in.

The third component of our growth strategy focuses on packaging our simulators with additional training services. We refer to this as integrated training solutions. Customers today are looking for a company that not only delivers a training device, but complements that product with associated training and support services. Today we're developing opportunities where GSE provides not only the simulator but simulator maintenance, testing services, training programs, including content and instruction, as well as training center administration. Instead of being a builder of simulators, we are transitioning the company to an integrator of training solutions that use simulation. Our focus is now on how we help our customers get their customers trained in the best and most cost-effective way. We have several major proposals close to fruition in various parts of the world, utilizing this integrated training solution concept.

To summarize, the company is making progress in all three of our growth areas, and now that the spinoff from GP Strategies is complete we can be fairly and objectively evaluated by the investment community. I know that we now have a substantially larger base of shareholders, and I'll try hard to keep you informed and gain your support as we execute our strategy. I would also be pleased to arrange visits with you, to explain in more detail the opportunity that I believe GSE presents.

Thank you for your continued support, and at this point, I'd be happy to take any questions that you might have.

[Operator Instructions] Mr. Hough, it appears we have no questions.

OK, ma'am, could you leave the lines open just a little bit longer?

Absolutely.

Just in case someone is contemplating a question. OK, well, it appears there's no questions. I'd like to thank the participants on this investors conference call and I look forward to providing you updates through the fourth quarter. Thank you very much.