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GSE Systems Inc. Message Board

  • gonuke68 gonuke68 Aug 23, 2012 12:12 PM Flag

    Help, clarity on these issues?

    The Revenue/Qtr for the last 3 Quarters and is trending down.

    Gross profit is mixed for the last 3 Quarters and explained by CEO a result of the SE lower margin and higher margin of Envision products. There is some competition between products lines and would assume much of these fluctuations can be a function of individual timing within a qtr, however, the SE project is now on hold or deferred.

    The SE revenue composition consists of labor and hardware. The SE delay will reduce both. The SE project is on hold and staffed minimally with 2 people. Is 2 people 10-20% of full load? Bottom line there is a hit to the revenue line now and in the near future.

    Assume the labor cost from the SE projects is still there and revenue is going down. Where did the labor go assuming there were no staff reductions? It seems theses resources are applied to get R&D projects done sooner.

    The 2Q release indicates the R&D labor costs have almost doubled compared to 2011. The release also indicates almost doubling of software capitalization which removes the cost from the P&L and moves the cost to the balance sheet for now.
    If these observations are correct and the software development was not capitalized to this extent then the operating income would have been much less and possibly breakeven or a loss. On a go forward basis the capitalization costs will eventually hit the P&L in the future. If the Company grows as a result of the investment, all is well. If the Company is stalling this accumulation of cost can be a drag on profitability in the future?

    Assume some of these factors are related to why Roth lowered the forecast after Q2 release?

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    • Good questions, unfortunately I don't have answers.

      Trying to see where the growth component is here. The balance sheet looks clean, the insider buying looks good. But all I see is a company that is teetering on breakeven for the full year. Based on the full year analyst estimate of 8 cents, that's not doable given the two quarters already posted and the estimate for this/next quarters. So we're looking at 4 cents/share for the year based on the quarterly estimates shown. Is this worth a PE of 45 or 50? We could just as easily be looking at a loss for the year.

      I want to like/buy it, but I don't see the growth/catalyst.

      Anyone who can provide the key selling points here?

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