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Edited Transcript of GVP earnings conference call or presentation 14-Mar-19 8:30pm GMT

Q4 2018 GSE Systems Inc Earnings Call

SYKESVILLE Mar 25, 2019 (Thomson StreetEvents) -- Edited Transcript of GSE Systems Inc earnings conference call or presentation Thursday, March 14, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher D. Sorrells

GSE Systems, Inc. - COO & Director

* Emmett Anthony Pepe

GSE Systems, Inc. - CFO & Treasurer

* Kyle J. Loudermilk

GSE Systems, Inc. - President, CEO & Director

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Conference Call Participants

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* Joshua David Vogel

Sidoti & Company, LLC - Analyst

* Tate H. Sullivan

Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst

* Devin Sullivan

The Equity Group, Inc. - SVP

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Presentation

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Operator [1]

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Greetings, and welcome to GSE Systems, Inc. Fourth Quarter and Full Year 2018 Financial Results Conference Call and Webcast. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to our host, Mr. Devin Sullivan, Senior Vice President of The Equity Group. Thank you. You may begin.

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Devin Sullivan, The Equity Group, Inc. - SVP [2]

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Thank you, Diego, and good afternoon, everyone. Thank you for joining us today.

Before we begin, I would like to remind everyone that statements made during the course of this call maybe considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act of 1934. These statements reflect current expectations concerning future events and results. Words such as expect, intend, believe, may, will, should, could, anticipate and similar expressions are words that are used to identify forward-looking statements, but their absence does not mean a statement is not forward-looking. These statements are not guarantees of future performance and are subject to risks and uncertainties and other important factors that could cause actual performance or achievements to be materially different from those projected. For a full discussion of these risks, uncertainties and factors, you are encouraged to read GSE's documents on file with the U.S. Securities and Exchange Commission, including those set forth in periodic reports filed under the forward-looking statements and Risk Factors section. GSE does not intend to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

On this call, management may refer to EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS, which are not measures of financial performance under generally accepted accounting principles or GAAP. Management believes that these non-GAAP figures, in addition to other GAAP measures, provide meaningful supplemental information regarding the company's operational performance. Management uses these non-GAAP measures to evaluate the performance of GSE's businesses and to make certain operating decisions, such as budgeting, planning, employee compensation and resource allocation. This information facilitates management's internal comparisons to GSE's historical operating results as well as for the operating results of its competitors. Since management finds these measures useful, GSE believes that investors may benefit by evaluating both non-GAAP and GAAP results. Investors should recognize that these non-GAAP figures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition to and not as a substitute for or superior to any measure of performance prepared in accordance with GAAP. A reconciliation of non-GAAP measures to their most directly comparable GAAP measures in accordance with SEC Regulation G can be found in the company's earnings release.

And with all that said, I'd like to turn the call over to Mr. Kyle Loudermilk, Chief Executive Officer and President of GSE Systems. Kyle, please go ahead.

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [3]

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Thank you, Devin. I'd like to welcome everyone to GSE Systems' Fourth Quarter and Full Year 2018 Financial Results Conference Call. Also on today's call are Chris Sorrells, our Chief Operating Officer; and Emmett Pepe, our Chief Financial Officer. Earlier today, we issued a press release covering our fourth quarter 2018 financial results. Hopefully, you've had a chance to review this news release, but if you have not, a copy can be found on our website at www.gses.com under the News section.

I'm proud to report that our adjusted EBITDA in the fourth quarter of 2018 grew 47% year-over-year to $2.8 million. For full year 2018, on a year-over-year basis, GSE's revenue increased 30% to $92.2 million, adjusted EBITDA rose 32%, $7.4 million and adjusted earnings per diluted share grew 60% to $0.24 per share. These outstanding financial results reflect our ongoing dedication to providing clients with best-in-class engineering and expert staffing solutions as well as our efforts to enhance GSE's capabilities through carefully selected acquisitions. The highly complementary acquisitions of Absolute Consulting in September of 2017 and True North Consulting in May '18, both contributed meaningfully to our 2018 financial results. With greater scale, we are starting to deliver operating leverage.

Our SG&A as a percentage of sales declined approximately 300 basis points to 19% in 2018 compared to 22% in 2017. We continue to advance our strategy of consolidating the fragmented vendor ecosystem serving the nuclear power industry. After quarter-end, in February 2019, we acquired DP Engineering. Founded in 1995, this Fort Worth, Texas-based engineering firm brings to GSE a core competency in engineering design modifications centered around regularly scheduled nuclear plant outages among other value-added capabilities. DP Engineering generates over 90% of its revenue from the nuclear power industry and employs approximately 110 full-time professionals with core expertise in mechanical design; civil/structural design; electrical, instrumentation and controls design; digital controls/cybersecurity; and fire protection. Following up on the DP client issue we mentioned in our earnings release, after a recent performance issue at a customer location, in accordance with its standard operating procedures and an Engineer of Choice agreement, a customer of DP Engineering issued a notice of suspension to DP Engineering, while a root cause analysis of the event proceeds. Approximately 25% of the impacted DP projects have already been restarted at the request of the customer. DP Engineering and GSE are working with the customer and outside vendors to advance a thorough root cause analysis related to the event. This is the appropriate and standard procedure in the industry, and we anticipate further clarity once the analysis is complete. That said, we remain confident that DP will be in the central part of the business and are excited about the opportunities ahead of us.

Back to the fourth quarter. New orders remain healthy at $17.7 million compared to $17.9 million in the prior year. New orders included a $3 million expert staffing contract from a leading Northeast utility, a $2.6 million contract to automate data validation and reconciliation fleet wide for a major customer, a $1.7 million full-scope simulator for an international client, and finally, a $308,000 software perpetual license for a client in the Department of Energy in support of the U.S. Navy's nuclear propulsion research efforts.

Our quarter end backlog remains strong at $68.7 million compared to $71.4 million at the end of 2017. Total backlog consisted of $47.5 million of Performance Improvement Solutions and $21.2 million of Nuclear Industry Training and Consulting backlog. These are solid numbers given the significant burn down of the large full-scope simulator project for a Southern Nuclear utility operator, which all told, accounted for approximately $28 million in backlog for Performance Solutions when signed over 3 years ago. This once-in-a-generation order, which added over $10 million in annual revenue in each of the last 2 years, will contribute modestly to our 2019 results as we wind down and close out its final requirements.

That said, our growing portfolio of solutions and ability to cross-sell puts us in a position to build our backlog in 2019. A good example of what I'm referring to is the $2.6 million contract that we announced in January 2019 from a major U.S. nuclear operating company to deliver a data validation and reconciliation solution for that utility's large fleet of nuclear reactors. We are leveraging True North's extensive subject matter expertise and innovative third-party software to build simulation models of the client's numerous nuclear reactor plants and integrate those models with the respective plant information systems to automate DVR fleet [wide]. True North took the lead on this project, and we cross-utilized our resources across GSE to win this project, including R&D and nuclear engineering professionals. As a result of our being 1 company, we are uniquely able to provide this solution with greater value than either could independently. By offering our customers an extended array of value-added solutions, such as this one, we are solidifying our position as a go-to provider of specialized engineering and expert staffing solutions for the nuclear power industry.

So to recap 2018. We won a record number of new business orders globally and maintained a solid backlog despite the wind down of our very large full-scope nuclear project -- simulator project. We acquired True North and fully integrated the organization with GSE's business. We achieved strong growth at the highest level of revenue, gross profit, adjusted EBITDA and adjusted EPS since I joined the company. And finally, we provided comprehensive, differentiated and world-class solutions to provide compelling value to our clients.

In conclusion, entering 2019, we believe we are in a strong position to continue to grow and enhance our operations. We expect to achieve additional operating leverage in the business, and we believe the acquisition of DP Engineering will create meaningful additional value for our customers, our shareholders and for our very talented people.

I'll now turn the call over to Chris Sorrells, our COO. Chris, please go ahead.

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Christopher D. Sorrells, GSE Systems, Inc. - COO & Director [4]

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Thanks, Kyle. I'm also really pleased with GSE's performance in 2018, and believe our momentum continues into 2019. I'm going to start by talking about our latest acquisition. We acquired DP Engineering for several reasons. One, it provides us with a core competency in nuke facility outage work, which takes place approximately every 18 months for the average nuke plant. Two, it deepens the customer relationships, including with the primary client that we both share. Three, its business model is largely time and materials versus fixed price, so less complexity on back-office integration. Four, it presents another compelling cross-selling opportunity for both of us. Five, it enhances GSE's margin profile with gross profit margins expected to exceed 30% and historically, it's generating strong free cash flow.

We do expect some choppiness in the DP results over the next few months as we work through typical integration issues that we experienced with all of the prior deals as well, as well as the work suspension order that Kyle mentioned. That said, we purchased this asset for its long-term potential. We're glad it's part of the portfolio, and we believe we can achieve a significant return on our investment, which should become more evident as we enter the second half of the year.

With the DP acquisition, it is worth noting that GSE now has more than 500 of its own employees as well as access to our proprietary database with thousands of additional expert professionals that can help meet our clients' complex needs. For example, if a client requires an electrical engineer with a digital control expertise, on say the Westinghouse, ABB, Siemens system, we likely can match a highly qualified professional within 48 hours. And in some instances, may have even worked with client previously.

As we have done with other deals, prior to the transaction close, we prepare a detailed 100-day plan to integrate DP with GSE. Under our integration plan, the DP unit will report to me and its finance team will report to Emmett. Its business development team will report to DP's President, Greg Hietpas, with a dotted line to GSE's Senior Vice President of Business Development. GSE will assume back office functions such as payable, insurance, compliance, legal, et cetera, and we are moving swiftly to ensure that DP is fully integrated by the end of the third quarter.

We are keeping the DP Engineering name given its brand recognition within the industry. With each acquisition, the plan is to brand it with a GSE company mark beneath each logo. In this instance, we are talking about DP Engineering, a GSE company.

I'd like to briefly comment on our M&A pipeline. The goal remains to close 2 value-creating strategic deals per year. And we already have completed our first in 2019 with the purchase of DP. Currently, we are engaged in meaningful discussions, mostly comprised of engineering businesses and expert staffing businesses serving nuclear, and we would expect the combination of cash, selling and earn-outs and possible equity in the future deals. Given the current pipeline, we are maintaining an appropriate cadence of acquisitions to achieve a Vision 2020 goal of more than $200 million in revenue and $20 million of adjusted EBITDA on an annual run-rate basis by the end of 2020, assuming we can secure the necessary capital to close such deals.

One last comment on industry developments and policy. 2018 was a good year for state lawmakers, passing laws, protecting its nuclear assets. The biggest law of the year was passed on May 22. New Jersey passed a bill establishing a zero emission certificate program to maintain New Jersey's nuclear energy supply, which contributes close to 40% of the state's electric capacity and is by far the largest source of carbon-free power. The core reactors operating in New Jersey are capable of generating over 4,100 megawatts of electricity.

Now moving on to near-term positive pending legislation. A draft law updating the Pennsylvania Alternative Energy Portfolio Standard Act will recognize nuke energy for its significant contribution to the state's zero energy production has been introduced to the state's legislature. Representative Tom Mehaffie who introduced House Bill 11 [quote] Pennsylvania's nuclear power plants generate 42% of its electricity and 93% of its zero-carbon power, but are currently excluding from the AEPS program. House Bill 11 aims to change that to include nuclear energy.

The actions of New York, Illinois, Connecticut and now New Jersey could represent a trend which may continue if states such as Ohio and Pennsylvania consider a legislation to recognize the value of zero carbon power produced by nuclear plants in their respective states. This is very similar to having a renewable portfolio standard that's rolled out across more than half the states in the U.S. to recognize the benefits of zero carbon renewable power.

With that, I would like to turn it over to Emmett, who will review the fourth quarter financial results.

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Emmett Anthony Pepe, GSE Systems, Inc. - CFO & Treasurer [5]

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Thank you, Chris. I'll begin with an overview of our fiscal year end results. 2018 results highlight our progress toward the Vision 2020 goal that we published in the beginning of last year. Fiscal 2018 produced strong numbers for new orders, revenue, gross profit, adjusted EBITDA, adjusted net income and adjusted EPS. Throughout the year, we highlighted some of our new order wins in various press releases. We had significant wins in China, Slovakia and Korea for nuclear power simulation work totaling approximately $12 million. In November, we announced the 5-year contract worth up to approximately $19 million, which is a continuation of support at 2 U.S. government engineering laboratories dedicated to the support of the U.S. Navy. Also, the $2.6 million contract Kyle discussed earlier awarded to True North for a data validation and reconciliation solution is an excellent example of the collaborative culture that we are building with this platform.

With the full year of absolute and a [part full year] of True North, we were able to grow revenues 30%, gross profit 25% and adjusted EBITDA 32% year-over-year. While we do experience quarter-to-quarter fluctuations, a good example of which is our generally lower first quarter, where we tend to incur seasonal operating expenses related to year-end audit and tax fees, we are managing the business for sustained long-term results. Our year-over-year improvements across multiple facets showcases this strategy. We're looking forward to continuing this progress in 2019, which is already off to a promising start with the recent acquisition of DP Engineering. I would also like to remind everyone that we expect to utilize approximately $4 million of our net operating losses in 2018, based on profitability and have approximately $18 million of NOLs remaining as of December 31, 2018. The earliest tranche of those NOLs are not set to expire until 2024. We are reasonably comfortable that we can utilize this asset fully. Depending on the level of our M&A activity, these NOLs can shield GSE from paying cash taxes over the next 2 plus years. We believe these NOLs are meaningful in relation to GSE's recent equity market capitalization of around $60 million.

Now to review the results for the fourth quarter. Total revenue in Q4 2018 increased 4% to $22.9 million from $22 million in Q4 of '17. The increase year-over-year was driven by a $2.5 million increase in the Performance Improvement segment due to our Q2 acquisition of True North. Our NITC segment declined year-over-year by $1.7 million, primarily due to lower staffing demand for Absolute Consulting. We have already made progress in addressing this issue in our NITC segment by increasing our business development efforts.

Gross profit in Q4 of '18 rose 25% to $6.5 million from $5.2 million in Q4 '17. The $1.8 million increase in our Performance Improvement segment was driven by our Q2 2018 acquisition of True North as well as a significant cost savings realized in a few major simulator projects. The significant cost savings on percentage of completion projects allowed us to capture additional margin on works completed in prior quarters. NITC segment's gross profit decreased $500,000 year-over-year due to the decrease in revenues detailed previously.

SG&A expenses increased only $100,000 year-over-year. Considering the addition of True North, in 2018, we are very pleased with this result. This shows the effectiveness of our international restructuring effort as well as the operating leverage we can achieve as a large platform. Non-GAAP adjusted EBITDA as defined in our earnings release increased to $2.8 million in Q4 '18 compared to $1.9 million in Q4 '17. We concluded 2018 with a cash position of $12.1 million and total debt of $8.5 million. With the acquisition of DP Engineering, we have increased our total debt position subsequent to quarter-end to approximately $23 million. In addition, for the rest of 2019, we are amortizing approximately $400,000 per month or $5 million per year in debt and will reduce our modest leverage ratio significantly and rapidly. This debt has approximately 35% hedged at 5% with the balance and a floating interest rate currently just under 5%.

We have fully utilized our $25 million delayed draw term loan with Citizens Bank, however, through our banking relationship, we're positioned to increase our borrowing capacity to facilitate future acquisitions. We will prudently use any additional debt maintaining appropriate leverage ratios as we execute our Vision 2020 strategy.

I'll now turn the conversation back to Kyle.

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [6]

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Thanks, Emmett. Operator, please open the floor to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Tate Sullivan with Maxim Group.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [2]

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Thank you for that detail on the DP acquisition and everything, too. First, on the EBITDA in fourth quarter of $2.8 million, I mean, with 12% margin there, and Emmett, I think you mentioned some closeout, some cost savings on, I assume, the large simulator project. But I mean, are you maintaining your 7% to 10% EBITDA margin target, I think it was, for '20? And how much of that in the quarter was onetime in that $2.8 million?

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Emmett Anthony Pepe, GSE Systems, Inc. - CFO & Treasurer [3]

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We definitely are maintaining our historical thought process. The onetime, we wouldn't disclose that detail at this point.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [4]

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Okay. And Chris, I think, you mentioned 2020 EBITDA target run rate at the end of the year. You're still $20 million. Is that correct or was it a range?

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Christopher D. Sorrells, GSE Systems, Inc. - COO & Director [5]

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I said $200 million plus, $20 million plus, yes, in the debt. We had $200 million to $300 million revenue; adjusted EBITDA $20 million to $30 million.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [6]

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$20 million to $30 million, that's right. Okay. And Kyle, thank you very much for giving the detail on DP and the site event. How much lead time do you get in that site event that led to temporary closing of the project? So can you just go into more detail there? And did you have a inkling of this at the deal time when you closed the deal or is this somewhat standard at nuclear sites as well?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [7]

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Well, what's occurring right now is a standard process with the customer and our contract where if an issue arises, think an issue -- a suspension of work order. So as I mentioned, 25% of the affected project -- already been affected. There's really little lead time to that, Tate. It's an e-mail, it's a call. It pretty much happens in real time, and it was after the close. But with that said, we're working closely as a team with DP and are really happy DP's part of the GSE family.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [8]

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Is it -- I think -- can you -- does DP have meaningful customer concentration or site exposure or how diversified is its customers?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [9]

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Yes. Chris, do you want to take that?

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Christopher D. Sorrells, GSE Systems, Inc. - COO & Director [10]

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Sure, at the moment, we have not been able to -- well, we're still working to evaluate if that information is something that we could even share under our commercial agreement, Tate. So you can imagine, it's sensitive in nuke. It is not uncommon to have customers 20, 30, 40 plus percent. You've seen us in prior deals have customer concentration that has ranged from 20 plus. If you looked in prior case, you will see that our NITC division has their customers in the 50-plus percent range-ish. And you will notice, say in the prior case, our customer concentration has -- could approach north of $20 million with a single customer. So nuke is -- there's probably 10 players that really matter that have consolidated the 99 reactors that are present in the industry, and it really fits with what we have been saying, which is with the concentrated customer base, eventually suppliers will be forced to consolidate as well. So that is just a part of the business that one or two points work on a regular basis.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [11]

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Okay, and last one on the DP. The recent event too is that, that -- I mean, you already start -- restarted 25% of the projects. When you get a notice of suspension in the industry, how long might it take to resolve? Is there a base case for that?

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Christopher D. Sorrells, GSE Systems, Inc. - COO & Director [12]

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Well our strategy is to -- I don't want -- forget this particular event. Every project, every customer interaction, we are focused on being very responsive in providing top-notch service. And this situation isn't different. So we are super pleased with the response of the team and they're working diligently to address the issue. There are some dates and things that we are doing. We have been on-site communicating. When it -- needs -- really to be determined and part of that would be the -- in some of the analysis that we are conducting.

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [13]

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This is Kyle. Just to add a little clarity on that, too. Our Engineer of Choice contract with this customer really contains provisions contemplating exactly this kind of process in certain circumstances. So the process we're following is already anticipated. As we disclosed in our earning release, we've already seen that 25% of the customers' projects get turned back on, and while experience suggest that the notice will not be lifted until root cause analysis is complete, we just don't have clarity on a specific time when that is, but we're racing full steam ahead.

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Operator [14]

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(Operator Instructions) Our next question comes from Josh Vogel with the Sidoti & Company.

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Joshua David Vogel, Sidoti & Company, LLC - Analyst [15]

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I -- you've already covered what's going on with DP a lot. I was just curious with the suspension order delay. Does that also delay your integration time line?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [16]

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No, not at all. We're working really closely with DP. It's a great and very talented group. If you know, it's a -- as a combined entity, I think it makes legacy [GSE] and the DP stronger as a result. So no, we don't expect any [tricks] in integration practices, and it's a great group to work with.

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Joshua David Vogel, Sidoti & Company, LLC - Analyst [17]

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Okay. Great. I mean, you did a good job discussing the gross profit and the margins in the quarter and some items that contributed there. I recall in Q3, there was a one-off recognition of revenue from the southern nuclear utility operator. I was wondering if there was any other one-off items that contributed in Q4.

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Christopher D. Sorrells, GSE Systems, Inc. - COO & Director [18]

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Yes, we did, as I mentioned. We had a couple percentage of completion contracts that we realized some cost savings that would be one-offs similar to the southern utility company once we had in Q3.

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Joshua David Vogel, Sidoti & Company, LLC - Analyst [19]

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Okay. And you mentioned in the past that the landmark projects from 2016 was generally lower margins than the legacy business. Now that that's running off, should we expect to see a bump in the Performance Solutions margin in 2019 versus prior years?

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Christopher D. Sorrells, GSE Systems, Inc. - COO & Director [20]

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In general, yes, but different projects will have different mixes. But conceptually, that particular one was heavy with equipment. That just had a markup, so overall margin, our engineering services margins are higher. But to the extent some of our businesses, simulators that we have overseas, those margins could also be consistent with the southern utility company.

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Joshua David Vogel, Sidoti & Company, LLC - Analyst [21]

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Got it. And just 2 more quick ones, if I may. It was nice to hear you won a software perpetual license in the quarter. I'm just curious how much revenue today comes from software licenses? And what's your expectation around growth as we move forward?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [22]

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Yes, this is Kyle. Yes, it was a great win. Absolutely delighted. Nice proof point in our thesis here. We state publicly that -- and in our investor deck, that software at our current size is less than 5%. But we do get these nice proof points that come along the way, which are adding a lot of value to our customers. It's highly profitable for us as we sell that and the expectation is, with all the expertise we have on board now, we're going to come up with new ideas much like that opportunity -- the $2.6 million opportunity highlight. So again we've -- that's a real-time example of how we're working to grow the business and add more value.

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Joshua David Vogel, Sidoti & Company, LLC - Analyst [23]

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Great. And just lastly, you were just talking about the $2.6 million contract. I know that began as a pilot program. Can you just talk about the environment today? How many pilot programs are you working on? And expectations going forward there?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [24]

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All right. Well, we don't publicly disclose our early adopter program resident -- participants rather. But we're highly active with clients and pilots and really around early adopter program, so that we can quickly test the market, working usually with a sponsor client or 2 around a specific solution concept. If it gains traction, it advances. So you see that here. If it doesn't, we move onto the next pivot, and that's the modern way of developing a technology, being lean, doing quick turns and making sure, you don't go off course. So I'd give that color.

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Joshua David Vogel, Sidoti & Company, LLC - Analyst [25]

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Okay. Actually, if can just sneak one more in. With regards to that contract, I know that it covered the build-out for 2019. You've mentioned in the past that you may end up winning the integration side of the work in 2020. When would you find that out?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [26]

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I don't recall off the top of my head the timing of the project, but we'd probably find out as the project's unfolding, through the course of 2019, but that's speculation, that's not a commitment or forecast or anything.

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Operator [27]

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Your next question comes from Tate Sullivan with Maxim Group.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [28]

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Just real quickly. Emmett, did you say that, and if you can, that you closed out the simulator -- the largest simulator order in the quarter? Is there still some revenue going into '19 on that?

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Emmett Anthony Pepe, GSE Systems, Inc. - CFO & Treasurer [29]

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That's still active in the '19. Still going.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [30]

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Okay, okay. And then, Kyle, before, you've talked about the recent signs of more people in the nuclear industry retiring or reaching retiring age, have you seen more recent signs of that?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [31]

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It's a continuing process. There is -- it's a wave, it's continuing. It's a long wave. There's been no change in our observation. So it's definitely an issue for industry, but one where we can help address any type of skills or labor gap or project gaps.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [32]

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So on that note, might the absolute -- the comment on the absolute lower staffing demand be temporary on that? Or were there some seasonal considerations?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [33]

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Well, we don't give guidance. So that's the first thing I'll just be clear on, but there are some puts and takes in any one of our business. So it's a dip in revenue. Typically, what you do is make sure you get the right salespeople with the right commission plan and get them out there to make sure we are winning business versus our competitors, and across the board that's what we're doing. But we're going to have puts and takes from a quarter to the next for any one of our product -- or business lines.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [34]

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Okay. And on that, and last for me is, the orders quarter-to-quarter. I mean, and I understand, and I think you had some sequential drop in orders from 3Q to 4Q last year. Is that based on trends -- seasonal trend in the industry? Or can you just talk about the orders in the quarter, too?

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [35]

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Yes, I'll talk about it. I mean, in general our business' state, especially on these projects that are not time and material it's where it's -- there is definite lumpiness for that business. Now as we -- as the platform add more talent, businesses, customers, and diversify our offerings to the market, we would expect that lumpiness and the peaks and valleys to level out somewhat, although not entirely go away. So the projects could be driven by a project need, industry need, could be cyclical. It could be driven by outages, could be driven by client budgets. So there's really no predicting or putting your finger on any one thing. Other than to say there is, for any one of our businesses that are not time and material, there's going to be lumpiness. And again, as the larger we get the more the peaks and valleys should level out.

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Operator [36]

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There are no further questions at this time. I'll turn the conference back to management for closing remarks.

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Kyle J. Loudermilk, GSE Systems, Inc. - President, CEO & Director [37]

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All right. Thanks, everyone, for joining us. In closing, I'd like to say how pleased we are with our progress in 2018 and reiterate our focus and continued improvement as we go forward. I'll be presenting at the ROTH Conference in Dana Point, March 19, and at the Sidoti Conference in New York, March 28. For those of you who are attending either or both of these events, I hope to see you there, and thank you all again for your time and interest in GSE.

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Operator [38]

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Thank you. This concludes today's conference call. All participants may disconnect. Have a great day.