GSE Systems Inc (GVP) 2009 Q4 法說會逐字稿

Good day and welcome to the GSE Systems Incorporated fourth quarter and year end 2009 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Chief Executive Officer, Mr. John Moran. Please go ahead, sir.

Thank you. Welcome, everyone, to GSE's 2009 year-end conference call. I'm John Moran, GSE's Chief Executive Officer. I'm joined here today with our Chief Financial Officer, Jeff Hough.

Today's call will begin with a brief overview of our fourth quarter and year-end 2009 financial results, including much more detail on our disclosure today that we've recorded a reserve against our outstanding receivable at the Emirates Simulation Academy project in the UAE as well as for a portion of the credit facility that Union National Bank in Abu Dhabi has extended to ESA.

That will be followed by an update and general outlook on our nuclear simulation, non-nuclear simulation and training and services business sectors.

We'll conclude with some comments and a general outlook for 2010, much like we did last year, followed by time for any questions that you might have.

But before we begin, I'd like to turn it over to Jeff to address the subject of forward-looking statements.

This presentation contains forward-looking statements regarding the future performance of GSE Systems, Inc, that involve risks and uncertainties that could cause actual results to differ materially, including but not limited to economic conditions, customer demand, increased competition in the relevant market and others. We refer you to the documents that the Company files from time to time with the Securities and Exchange Commission such as the Form 10-K, Form 10-Q and Form 8-K reports, which contain additional important factors that could cause actual results to differ from its current expectations and from the forward-looking statements made in this presentation.

Thank you, Jeff. As noted in our press release, the Company reported that revenue for the three months ended December 31, 21, 2009, was $11.1 million, a 32% increase from the revenue reported for the three months ended December 31, 2008 of $8.4 million.

GSE reported an operating loss of $1.054 for the fourth quarter of 2009, as compared to an operating income of $140,000 in the fourth quarter of 2008.

The net loss for the December 31, 2009 quarter was $2.159 million or minus $0.11 per share on both a basic and diluted basis, as compared to a net loss of $69,000 or $0.00 per share on both a basic and diluted basis for the fourth quarter of 2009.

Excluding the effect of the ESA impairment charge and the establishment of the related reserves, GSE would have reported operating income for the fourth quarter of 2009 of $454,000 and a net income of $214,000 or $0.01 per share on both a basic and diluted basis for the fourth quarter of 2009.

GSE reported revenue for the 12 months ended December 31, 2009 of $40.1 million, a 38% increase from the revenue reported for the 12 months ended December 31, 2008 of $29 million.

In 2009 the Company generated $29.1 million or 73% of our total revenue from nuclear simulation, $10.3 million or 25% of the total revenue from non-nuclear simulation and $718,000 or 2% of the total revenue from training and educational services.

GSE reported operating income of $563,000 for the 12 months ended December 31, 2009 as compared to an operating loss of $12,000 for the 12 months ended December 31, 2008.

The Company incurred a net loss attributed to shareholders of $797,000 for the 12 months ended December 31, 2009 or minus $0.05 per share on a basic and diluted basis, compared to a net loss of $690,000 or a minus $0.04 per share on a basic and diluted basis for the 12 months ended December 31, 2008.

Excluding the effect of the ESA impairment charge and the establishment of the related reserves, the Company would have generated operating income of $2.1 million and net income of $1.6 million or $0.09 per share on both the basic and diluted basis for the 12 months ended December 31, 2009.

During the second half of the year, the (inaudible) the Company successfully completed financing for net proceeds of $15.9 million, and as a result ended the year with $25 million cash in short-term investments.

The Company continued throughout the year to have zero borrowings against its $6 million revolving credit facility with the Bank of America.

The 2009 loss caused us to violate two of the financial covenants of the credit facility. However, Bank of America has already provided a written waiver for the defaults. And again, we have no borrowings against this facility.

GSE periodically enters into forward foreign exchange contracts to manage market risks associated with the fluctuations in foreign currency exchange rates on foreign denominated trade receivables. The purpose and structure of the foreign currency derivatives GSE has entered into are designed to protect the contract value and margins at the time the contracts are signed and are not designed to speculate on the direction of any currency up or down.

For the 3 and 12 months ended December 31, 2009, the Company incurred a $33,000 and a $763,000 pretax noncash gain respectively on the change in fair value of its foreign exchange contracts.

GSE's backlog as of December 31, 2009 was approximately $54 million compared to $38.1 million at December 31, 2008. Backlog is defined as the remaining value of signed contracts and does not include any value for contracts being negotiated or for contracts that have been signed since December 31, 2009.

Therefore, the backlog of $54 million does not include the expected total full value of the full scope nuclear simulator currently being built for Westinghouse Electric Company's Haiyang project in China. What's important to understand is that we have been authorized to work on this project, and we're booking revenue on the initial phases of this work no differently than any other project.

To characterize the contract backlog of $54 million a little bit further, 82% or roughly $43.5 million is in our nuclear simulation business sector, 16% or roughly $9.1 million is in our non-nuclear simulation sector, and 2% or roughly $1.3 million is in our training services sector.

Okay. Now I'd like to address the ESA project and our rationale for taking the charges, but first I'll provide a brief overview of the project with the intent to provide some perspective.

On November 8, 2005 the Emirates Simulation Academy LLC, or what we're referring to as ESA for short, headquartered in Abu Dhabi, the United Arab Emirates, was formed to build and operate simulation-training academies in the Arab Gulf region. These simulation-training centers were envisioned to train and certify indigenous workers for deployment to critical infrastructure facilities including power plants, oil refineries, petrochemical plants, desalination units and other industrial facilities.

The members of the limited liability company include AlQudra Holding of the United Arab Emirates with a 60% ownership position, the Center for-- of Excellence for Applied Research and Training of the United Arab Emirates with a 30% ownership position, and GSE with a 10% ownership position.

In January 2006, GSE received a $15.1 million contract from ESA to supply five simulators and an integrated training program. A $1.8 million change order was received from ESA in late 2007, increasing the total order value to $16.9 million.

The Company currently has trade receivables from ESA totaling $1.6 million, which are aged in excess of one year.

The Company also deposited $1.2 million into a restricted interest-bearing account at the Union National Bank, or UNB for short, in the United Arab Emirates as a partial guarantee for the $11.8 million credit facility that UNB had extended to ESA.

The interest earned on our restricted cash is part of the pledge deposit. Therefore, at December 31, 2009, the Company had a total of $1.3 million in the UNB account. The guarantee will be in place until the expiration of the ESA credit facility on December 31, 2014, or earlier if ESA pays down and terminates the credit facility.

Under the terms of the contract, the Company also provided a $2.1 million performance bond to ESA. On a positive note, this performance bond expired on September 30, 2009, and the restricted cash that had collateralized the bond was released by Bank of America and returned to us in early 2009.

ESA was formed in late 2005. It had its grand opining on January 14, 2009 and signed its first customer training con-- a contract on the same day.

Despite ESA's promotional efforts, 2009 revenue totaled on $57,000, and that resulted in a net loss of $6.1 million.

ESA's latest financial projections indicate they would not become profitable until 2016 and would not become cash positive until 2017.

At December 31, 2009, ESA had borrowed a total of $9.9 million from its credit facility with the Union National Bank, including accrued interest payable. ESA was delinquent in paying both principle and interest, a total of $1.5 million.

And in January 2010 UNB drew upon the guarantees of the three partners to pay off the delinquency, withdrawing $145,000 from GSE's restricted cash account.

In February 2010, GSE was notified that ESA had missed another loan payment and that 10% of that amount or $24,000 would be drawn from the Company's restricted cash account.

At a meeting of ESA's three shareholders, held at ESA on February 17, 2010, the shareholders reached agreement to significantly reduce costs and begin to explore options up to and including the selling of ESA.

Accordingly, based upon these recent events, the Company has determined that its remaining investment in ESA of $117,000 has been impaired and has established reserves for the trade receivable due from ESA at December 31, 2009 of $1.6 million and the cash that GSE has on deposit with UNB as a partial guarantee for ESA's credit facility of $1.3 million.

Partially offsetting these charges is the reversal of the remaining deferred profit related to the Company's sale of five simulators to ESA in prior years of $543,000 and the remaining agent fee that was due upon payment of the final outstanding receivable of $96,000. When totaled, the Company has taken a charge of $2.4 million in the fourth quarter of 2009.

Now as many of you who follow the Company are aware, we have been challenged from Day 1 on this project in getting paid on a timely manner. We've explained this in detail on our quarterly filings. Over the years, we've been consistently assured that all receivables due GSE would be paid, and for the most part they have, albeit quite late in most cases. However, the last receivables totaling $1.6 million have been outstanding for over a year. And despite receiving repeated and recent assurances that the receivable would be paid, both ourselves and our auditors felt it prudent to take the charges.

We're still working with our partners at ESA on almost a daily basis with a goal of receiving full payment. Should that occur the write-down would be reversed in the quarter in which a payment is received.

But let me close this part of the discussion by stressing that taking the reserve in no way affects GSE's future prospects, revenues, net income or contract backlog.

Okay. Let's now move on to the business segment overview and general outlook for each.

In our nuclear simulation sector we're currently working on eight new nuclear power plant simulators in the United States, China, Japan and Slovakia. In November we delivered a full-scope simulator to AEP's Cook Nuclear Power Plant here in the United States.

As noted in our December 21st press release this project was unique for a number of reasons. First, it is the first simulator of its kind to fully integrate both control rooms of a dual-site plant, setting a new standard for nuclear facilities with more than one unit occupying the same site. And secondly, it was delivered within 14 months, a record for the nuclear industry.

We're currently working off three full-scope AP 1000 nuclear power plant simulators for Westinghouse-- two in China and one in the United States where initial construction and the procurement of long-lead components is underway.

The Westinghouse AP 1000 technology-- the AP 1000 is the technology of choice for no less than 14 announced US nuclear power plants, including six for which engineering, procurement and construction contracts have been signed.

As we discussed during the midyear conference call, the full value of the first US-based AP 1000 simulator will likely be in the range of $6 million to $8 million, typical of the price range we've discussed many times for new full-scope simulators. The value of the contracts for the follow-on US-based AP 1000 simulators will depend upon how similar the design of the plants are. We'll have a better handle on this as plant-- as the plant-specific work starts to roll in over the course of 2010 and beyond.

Continuing with the nuclear sector, and again, this is a very important point to understand, we still generate about 50% of our revenue from servicing and modifying the world's existing install base of nuclear plant simulators, ours as well as those of our competitors.

The ShoreGroup, an architect engineering company that has significant operations in commercial nuc-- in the commercial nuclear power plants sector, estimated in one of its presentations earlier this year that approximately $25 billion of contracts could potentially be awarded in the US over the next 10 years to extend the life of existing plants and to upgrade their power levels.

The plant changes that necessarily result from these activities need to be reflected in the simulator, helping to drive this part of our nuclear simulation business.

In closing, we anticipate a continuing stream of nuclear upgrade modification work as well as additional new full-scope simulators in a number of geographies around the world. Using the most conservative model, each new nuclear plant simulator will generate revenues of approximately $6 million, recognized over a conservative period of four years. That means each new award would-- will add roughly $1.5 million in revenues to each of the four years of its development.

So turning now to our non-nuclear simulation sector, revenue generated from this business component was $10.3 million for the year, compared to revenues of $11.7 million in 2008.

The decrease occurred primarily in our conventional power plant simulation business where 2009 orders were also down from $13.7 million in 2008 to $5.6 million in 2009. This reflects the general uncertainty that now exists around federal, state and local emission control regulations, many of which are still being debated and are resultant emission control costs.

Our view is that new coal-fired power plant construction will continue to be affected by this dynamic until there's some clarity on the subject. The emission control issues are less of a concern for gas-fueled power plants, and as a result we're seeing an upturn in our combined cycle gas turbine power plant business. Based upon this, our expectation for this sector is that order growth will be much stronger in 2010 than in 2009.

But the overall good news here is that the strength in our nuclear sector more than offsets what we believe is a temporary lull in our conventional power plant sector.

Our process industry simulation business, which is part of the non-nuclear simulation sector that includes work primarily in the petroleum refining and petrochemical sector continues to be marked by a steady stream of new work in Europe, the Arab Gulf region and here in the United States at the Savannah River site in Georgia. We expect this trend to consent-- to continue throughout 2010.

Moving to our final business area, we believe our education and training sector is poised to become a more significant contributor to our overall business based largely on the initial success of the nuclear power operator training program that we developed and are now executing for the Southern Company here in the United States.

As noted in our December 21st press release, GSE graduated the first class of future nuclear plant operators at the Augusta Technical College in Georgia. The graduates are currently being deployed to the Southern Company nuclear fleet for orientation and then on to AP 1000 specific plant operations training.

The next operator training course for Southern is already underway, and we're discussing ways to potentially expand the program by overlapping classes to create a larger pool of qualified operators faster.

For this project, GSE developed and deployed its proprietary VPanel simulator technology. The VPanel uses proprietary software to create life-sized digital images of a nuclear power plant control room. These images are loaded onto touch-screen sensitive computer monitors and linked to an existing simulators plant models. Any control that can be manipulated in the real control room can be manipulated on the touch screens with exactly the same plant response, audible sounds and alarms.

The advantage of the VPanel is that it provides a very realistic control-room experience but can be deployed in the fraction of the time and the cost of the traditional full-scope simulator. Since nuclear plant is still required to have a traditional full-scope simulator, the VPanel simulators are largely accretive to GSE's base simulation business.

It's very important to note that the Southern project is being driven by the current and projected shortfall of qualified nuclear workers in the United States who are over 35% of the existing workforces expected to retire over the next five years. Most other US-based utilities with a nuclear component as well as countries outside the US with existing or planned reactors are experiencing the same challenge. Needless to say, our Southern program has generated significant and worldwide interest. And for this reason we expect the demand for this type of training program as well as for our VPanels to increase as we progress through 2010 and beyond.

Just this week we announced sales of our VPanel simulators to customers in Canada, the United States and China. Importantly, the gross margins for this type of training program and for the VPanel simulators is greater than current gross margins in our other business sectors. Therefore, this is one area of our business that could potential increases our consolidated gross margins from current levels over time.

Also worth noting is that the trading revenue from programs like this one we are running for Southern is recurrent in nature over the life of the contract.

In terms of the outlook for 2010 and beyond, and keeping in mind that GSE does not give quantitative revenue and net income guidance, let me share some general insights into what we believe we'll see for the balance of 2010.

Based on our current backlog, pipeline, current level of bid activity and our internal expectations of new business awards, we believe 2010 will prove to be another year of meaningful growth and improved financial performance. We're currently structured to scale our activity and revenue to significantly higher levels with minimal increases in operating expenses versus that incurred in 2009.

Operating expenses are expected to be in the range of $8.6 million to $8.9 million, roughly 5% above 2009 levels. This modest increase is primarily due to the Company's decision to bring on additional business development people to capitalize on the nuclear training opportunity I just spoke of.

Gross margins for 2010 are expected to remain at approximately 25% to 30% for the year, with some level of quarter-to-quarter volatility, similar to that experienced in 2009 continuing. Margin volatility is largely a function of any given quarter's revenue mix of services, licensees and hardware.

Regarding taxes, we expect that our tax rate will be in the range of 26% to 30%.

The Company will continue to be required on a quarter-to-quarter basis to mark to market the value of its foreign currency hedging contracts. These contracts, although noncash in nature, are expected to impact the income statement positively or negatively, depends upon the value of the hedging contracts at the end of each quarter. The gain or loss that will be reported due to these hedging contracts will net out to zero at the time the hedging contract expires.

I want to emphasize again that the Company enters into these hedging contracts to protect against foreign currency fluctuations and not to speculate in foreign currencies.

So, in summary, 2009 was a very good year for GSE, despite the ESA charges, which I want to stress again in no way affects the Company's future prospects, revenues, net income or contract backlog. A year ago I expressed our expectations that the significant growth in our backlog during 2008 and early 2009 would set the stage for meaningful growth in our financial metrics. I'm pleased to say that these expectations were met.

It is also worth noting that these improved financials were achieved while the Company maintained a near record backlog, meaning the influx of new business remained strong.

In 2009 we strengthened our positioning around the globe to participate in what we believe will be an increasing number of nuclear simulation awards and our customers both-- from our customers-- as our customers both here and the United States and abroad begin to accelerate their respective programs.

Our training and education initiatives are gaining traction. Our non-nuclear simulation business is growing again. And our strength in balance sheet will allow us more flexibility to pursue accretive acquisitions and joint venture opportunities should they emerge.

We, therefore, remain very optimistic that the progress and the momentum that we've demonstrated can continue throughout 2010 and beyond.

Thank you for listening and for your time. I'll now turn the call over to Q&A.

Thank you. (OPERATOR INSTRUCTIONS) And our first question will come from Mark Tobin from Roth Capital Partners.

Hi, John. Hi, Jeff.

Hi.

Hi, Mark.

I guess one quick question on the ESA write-downs that you're doing here. Is it-- is the-- is it fully reserved at this point? Are there any other potential reserves that could be taken?

No. We're completely reserved at this point.

Okay. All right. And then I guess digging into some of the numbers, can you tell us the Slovakia hardware revenue contribution for the quarter?

Yes, we can. Hang on for one second. So-- oh, I don't know for the quarter. For the year-- standby. Yes. So for the year it's $4.2 million in hardware. So if you do your calculation, Mark, and pull that out and do the gross margin, then the Company's gross margin is closer to 28.8%, almost 29%. With the $4.2 million we're looking at the numbers that we-- that you've got in front of you.

(OPERATOR INSTRUCTIONS) We will now take a question from Mark Schappel from The Benchmark Company.

Hi. Good evening. John, you're-- a central piece of your China strategy was to work with or develop a Chinese partner to get access to the (inaudible) 1000 designs. And I was wondering if you could just give us an update on how that's progressing or if there's any progress (inaudible) the quarter on that.

Sure. Of course, for those of you who are familiar with the Company, the China strategy revolves around positioning our Company with the right people and group so that we can gain full access to the power market, not only the nuclear market but the non-nuclear market.

AT this point we're in sensitive negotiations, and as those materialize we'll let you know.

Okay. Great. And with respect to your partnership with Westinghouse, I believe your agreement was for the first six nuclear simulators. You guys were the vendor of choice. We're not quite at six, but we're getting close. That's the good news. But I was wondering if, you know, we could expect maybe an updated announcement with respect to that partnership anytime soon?

Well, what I would say as a partnership, Mark, is going very well. It couldn't be stronger. We're in discussions with Westinghouse in many, many parts of the world on simulators that would ex-- would well go beyond the six that they're committed to us. The more that we do, the more difficult it's going to be for anyone else to enter that market.

So I don't think you're going to be seeing an announcement that says by the way, we've expanded the agreement to, you know, 25 or 50. But for all intents and purposes, we are Westinghouse's preferred vendor.

We'll now go to Dick Ryan from Dougherty.

Hi. Good afternoon. John, in your outlook for 2010, not wanting to quantify the top line, but can you give a sense of how you think the year flows from a seasonal perspective?

Well, obviously we think we're going to have a good year. It's difficult not to be optimistic. And of course we're going to work very, very hard on growing the Company. But it's really probably too early in the game to define precisely where we're going to be. And of course, you know we don't talk about future revenues.

But I will say that the consensus of the analysts that follow the Company have us at the upper $40s million in terms of revenue, which would indicate a 20% to 25% growth.

Okay. So looking at the ESA, are you able to take any of the simulators back out of the center there and use them for whatever purposes you see fit or not?

Well, I think it's really a little bit too early in the game to resort to those kinds of-- let's call them remedies. As I mentioned in the remarks, we're still in very detailed discussions with them. And in fact, at the meeting of February 17th they gave us assurances that the receivables would be paid. And we just basically came to the conclusion when that date passed that it was prudent to take the reserve.

But we're leaving all options open. And hopefully the best option obviously is we get full recovery of our receivable and the ESA becomes a success.

(OPERATOR INSTRUCTIONS) We'll now go again to Mark Tobin from Roth Capital Partners.

Following up on the revenue question, I guess looking ahead, can you give us a sense of how much of your existing backlog you think you'll recognize during 2010 based on current schedules?

Yes. We've noted that in the 10-K. And at this point $30 million has already-- of our target has already been accounted for. Said differently, the $30 million-- we're anticipating $30 million coming out of contract, existing contract backlog for 2010.

Okay. And then on the pipeline specifically with nuclear, do you see any imminent announcements? I think looking across the market, you know, some things are shifting around a bit.

Right. Well, in that regard, in terms of the number of new nuclear simulators, I would say in answer that the pipeline is large and growing. And it's basically coming in-- we expect it to come in at a more rapid pace over the next two years. So maybe we leave it at that.

It's very difficult to predict the timing of these. That's the difficult part, of course, and we don't control that.

Our next question comes from Brett Johnson from Rocket Capital Management.

Hi, guys.

Hi.

In regards to your 2010 outlook, could you maybe give a little bit more color around maybe the number of awards you're bidding on versus last year or quantify that maybe in percentage terms?

I guess we don't think about it in that way. Again, the way I would answer that is just to say that the pipeline is larger, and it's growing. And we expect awards at a more rapid base than we've seen in even 2008 and 2009. And like I said, it's very hard not to be optimistic at this point.

But again, the cust-- the most important issue is that the customer's timing relative to the awards. And unfortunately that's difficult for us to predict. But in general, from 60,000 feet, as I say, the pipeline is large and growing.

Should we see maybe larger awards as opposed to last year, or can you comment on that?

Well, I think until-- I'm hoping that I'm going to be able to comment on that maybe at the midyear call. The pricing for the full-scope simulators are holding at between $6 million and $8 million, as I mentioned. So there's not-- and you know, of course you have your outliers like (inaudible) at $18 million. But the bottom line is we expect that to continue.

The only difference might be in the US-based AP 1000 market. And there we're not at the point of having enough information to give any meaningful projections around the contract award value for those follow-on units. But globally the $6 million to $8 million seems to be holding pretty well.

And it appears there are no further questions at this time. However, I would like to give everyone one final opportunity. (OPERATOR INSTRUCTIONS) And it looks like we have a follow-up question from Dick Ryan from Dougherty.

Hi, John. Maybe more of a high-level question. I mean, you're seeing some movement where AREVA's looking at trying to get into the US and GE's making movements into Europe. What are the opportunities maybe with those two reactor designs? Anything developing there?

Well, what I'd say, Dick, is that we work with virtually every reactor vendor in the world, with one exception, and that is AREVA. And as you know AREVA purchased quarries. And the intent for AREVA is to use quarries to build their nuclear power plant simulators, even here in the United States, which I think is going to be a challenge for them.

So I would never say that we're out of the running with AREVA. And in fact we're in discussions with AREVA around their US-based plants. But I think that's going to be a challenge.

In terms of every other reactor vendor in the world we're in play up to and including GE.

Okay. Maybe one follow-on. How about on the smaller scale? You've got new scale. You know, you've got some other designs coming out here further down the road, B&W and the like. Can you bring us up to speed with what's going on on the smaller-scale nukes?

Yes, absolutely. We are the simulator vendor for new scale, which is one of the first smaller modular reactors in the world, and we're well on our way. We're in like our Phase 3 of that project. And there it's a wonderful thing because they're using the simulator to actually design the plant, design verify the plant and validate and construct the actual controls.

So we're taking that model to virtually every other small nuclear modular vendor in the world. And so we've got activities in Korea. We have activities here in the United States with Babcock & Wilcox. And we've had discussions around the pebble bed in China. And of course even though the South African program looks to be stalled a little bit at this point, we were the Company the built the simulator for the first small reactor. That was the pebble bed in South Africa.

So we consider ourselves very, very well positioned for-- to help those vendors very early in the design stage.

And we'll now go to Elias Moosa from Yerba Buena.

Yes. Can you hear me?

Yes, I can.

Elias Moosa. Hi, there.

Hi.

I was wondering if you could shed a little bit more light on the Chinese market, specifically on the AP 1000 market outside of Sanmen and Haiyang, I believe there are three other sites with AP 1000 scheduled to be constructed.

And then beyond that, on the AP 1000 derivative, the Chinese derivative of that, would you just comment on the development of the market for that and your own positioning? I know you have talked about a JV before. Can you give us a status update on that too?

Sure. Well, as I mentioned in regard-- in the previous question, one of the previous questions I think from Mark, positioning with the right group of people in China is essential. So at the 60,000-foot level, we know that there is a government policy called Made in China.

And to gain full access to the nuclear market as well as the power market, we're going to have to be recognized and viewed as a Made-in-China company. That means we're going to have to have some form of affiliation with, as I say, the right group of people, the right company in China. And we think that we've made substantial progress on that front. And as I said, we're in-- at this point we're in sensitive and advanced discussions. And when that materializes then, of course, we'll make that public.

Now, in terms of the AP 1000 market, it's very, very interesting. Obviously we've got the first four plants going up-- two at Sanmen and then two at Haiyang. And our understanding is that Westinghouse-- and this is just our understanding, so please, it's-- I don't know if this is factual. But obviously the plan in China is to phase Westinghouse out and obviously transfer-- they've got a big transfer of technology and to begin building the AP 1000 themselves.

And so here we are, the only company in the world that's built AP 1000 simulators, and we've built them in China. And so it's pretty much a slam-dunk that if we pick the right partner in China then we'll be doing a lot of those AP 1000 simulators with our Chinese partner.

Now the second part of that is it looks like Westinghouse is going to be the winner in China. So I know that there's three other sites that have the AP 1000s lined up, but we think there are going to be many, many more than that, so certainly one of our targets with our partners obviously to capture the AP 1000 business.

Now, the Chinese themselves have taken the AP 1000 and are scaling it up, and that's, I think, the project that you're referring to. And I think we're calling that the AP 1400. So it's basically a scaled-up version of the AP 1000. And again, we're in discussions. We have to get our partner lined up. And I think we'll be-- let's put it this way. I think we'll be very well positioned to provide the simulators on the AP 1400s.

So just to follow up on that, I appreciate the detail, the-- on the AP 1000-- on the original AP 1000 that'll be transferred to Chinese construction, have there been any bidding or even vendors chosen for this simulator? And then if you could also on the AP 1400, can you give us an estimated time for construction of the first plant that-- as far as you know it.

Yes. No, I really can't because I don't know what the timing is on the AP 1400. But they're moving rapidly on pretty much all of the fronts. And no, no one else is building an AP 1000 simulator in China except for us.

And we'll now take a follow-up question from Mark Schappel from The Benchmark Company.

Hi, John. I believe in the past you estimated the Haiyang, China project of about-- at about $4 million to $6 million in implied backlog. I was wondering if that estimate is still valid today.

So far. And you know, it's interesting because we would have anticipated having that already been negotiated. So that's a little bit slower than we think. But yes, we still think that Haiyang will come in in the $6 million to $8 million range. And we've already accounted for, Jeff, I think $3 million in backlog. I think it's roughly $3 million is already in backlog from that initial contract on Haiyang. But yes, we're very close to putting the rest of the project in backlog.

And are there any other significant projects in your implied backlog besides Haiyang?

None. Nope. That's why we don't talk about it anymore.

And it appears there are no further questions. I'd like to turn the call back over to our presenters for any additional or closing remarks.

No. I'd just like to thank everyone again for their time and attention. And of course I'll be presenting at Roth next Tuesday, and I'll try to make myself as available as I can in the intervening days. So thank you very much.

This concludes today's presentation. Thank you for your participation.