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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K
CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) April 1, 2024

GSE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware
  
001-14785
  
52-1868008
(State of incorporation)
  
(Commission File Number)
  
(I.R.S. Employer Identification Number)
 
6940 Columbia Gateway Dr., Suite 470, Columbia MD, 21046
(Address of principal executive offices and zip code)

(410) 970-7800
Registrant's telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation or the registrant under any of the following provisions (see General Instructions A.2 below):

☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d - 2(b))

☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e - 4 (c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Common Stock, $0.01 Par Value
  
GVP
   The NASDAQ Capital Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 

graphic

Form 8-K

Item 2.02
Results of Operations and Financial Condition

On April 1, 2024, the Company announced the financial results for the quarter and year ended December 31, 2023. The earnings release is attached hereto as an exhibit to this Form 8-K.

Item 9.01
Financial Statements and Exhibits

(c)
Exhibits

99.1
Press release of GSE Systems, Inc., dated April 1, 2024, announcing its financial results for the quarter and year ended December 31, 2023.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
GSE SYSTEMS, INC.
   
Date: April 1, 2024
/s/ Emmett Pepe
 
Emmett Pepe
 
Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit No.
Description
Press release of GSE Systems, Inc. dated April 1, 2024 announcing the financial results for the quarter and year ended December 31, 2023.


EX-99.1 2 ef20025606_ex99-1.htm EXHIBIT 99.1
Exhibit 99.1

GSE Systems Reports Fourth Quarter and Fiscal 2023 Financial Results

Conference Call Scheduled for today, April 1, 2024 at 4:30pm ET
 
Columbia, MD – April 1, 2024 - GSE Solutions. (“GSE Systems, Inc.”, “GSE”, or “the Company”) (Nasdaq: GVP), a leader in advanced engineering and workforce solutions that support the future of clean-energy production and overall decarbonization initiatives of the power industry, today announced financial results for the fourth quarter (“Q4”) and fiscal year ended December 31, 2023.

Q4 2023 and FY23 Highlights


 •
New orders for engineering division increased by 70.9% during FY2023 to $37.6 million, up from $22.0 million in FY2022.

•
Total new order flow for FY2023 was $47.3 million, up $7.7 million or 19.5% from $39.5 million in FY2022.

•
Engineering revenues increased 6.3% for FY2023 to $31.8 million compared to $29.9 million in FY2022.

•
Backlog at December 31, 2023, was $34.5 million, including $29.0 million of Engineering backlog, and $5.5 million of Workforce Solutions backlog.

•
Ended Q4 with cash, cash equivalents and restricted cash of $3.7 million, including restricted cash of $1.5 million.


Highlights subsequent to year-end


 •
Subsequent to year end, we received a significant contract renewal for 12 months of T&M services from a major long-term customer of $6.3 million, which is a 10.7% increase from prior year's contract.

•
Subsequent to year end, we received an order for the first year of a four-year agreement with a long-term customer of $0.9 million. The total expected value to be released over the next four years is $4.3 million.

Management Commentary

“Fiscal 2023 was a year in which we streamlined the company to properly reflect the state of the end market and aligned our efforts towards industry spend: lifetime extension of the existing fleet and increasing power production from the existing fleet through targeted capital investment. To that end, we are pleased with the Engineering revenue year-over-year increase, which resulted in an improved gross margin for the Company. Our focus on engineering utilization, especially in the second half of the year, has yielded solid results, and that focus will continue into 2024 as we continue to build our backlog. Workforce Solutions continues to be a challenge, as the industry is simply no longer committing to significant staff augmentation projects as they had prior to the pandemic. That said, we have worked diligently to now be properly aligned to the market and have seen significant improvement in our operational results in the second half of 2023.  Our improved Adjusted EBITDA numbers in the second half of the year reflect this proper alignment and the new mix of business. Moving into 2024, we will benefit from a full year of streamlined operational costs, an improved engineering utilization and a business mix that will continue to favor higher margin business and revenue.“

Emmett Pepe, CFO of GSE Systems, added, “As expected, we continued our improvement in reducing operating expenses as reflected in the reductions both quarter-over-quarter and year-over-year. These improvements, with the majority occurring in the second half of 2023, led to a favorable full year variance over 2022. We are positioned to achieve a full year of reduced operating expenses in 2024.  We continue to pay down our corporate debt, while maintaining our cash position which improved in the quarter as a result of the cost saving measures.”

Q4 2023 FINANCIAL RESULTS

Revenue during Q4 2023 was $10.2 million, a decrease of 12.0% compared to revenue of $11.6 million in Q3 2023, and a decrease of 6.0% revenue from $10.8 million in Q4 2022. The year-over-year decrease of $0.6 million was primarily due to the wind down of large projects in 2023 resulting in a reduction of staffing from our major customers, which continues to affect the power industry.

Engineering revenue was $7.1 million in Q4 2023 compared to $8.7 million in Q3 2023, and $7.5 million in Q4 2022. The year over year change was primarily attributable to the project inefficiencies in Q4 2023, resulting in decreased revenues.

Workforce Solutions revenue was $3.1 million in Q4 2023 compared to $2.9 million in Q3 2023, and $3.3 million in Q4 2022. The year over year decrease was due to the reduction in customer demand for Workforce Solutions.

Gross profit in Q4 2023 was $2.6 million, or 25.5% of revenue. This compared to gross profit of $3.1 million, or 28.2% of revenue in Q4 2022, and $3.7 million, or 32.1% of revenue in Q3 2023. The decrease in gross margin was primarily related to increased cost estimates in Q4 to align expected project costs.


Operating expenses in Q4 2023 were $4.1 million compared to $4.1 million in Q4 2022, the cost cutting measures implemented during FY2023, offset the goodwill impairment of $.5 million recorded in Q4 2023.
 
Operating loss was approximately $(1.4) million in Q4 2023, compared to $(1.1) million in Q4 2022 and operating loss was $(1.8) million in Q3 2023, and the decrease from Q3 2023 was due to a $0.8 million legal settlement expense recorded in Q3 2023.

Net loss in Q4 2023 was $(2.3) million or $(0.82) per basic and diluted share, compared to net loss of $(1.5) million or $(0.68) per basic and diluted share in Q4 2022.

Adjusted net (loss) Income1 totaled $(0.8) million, or $(0.28) in Q4 2023, $0.2 million, or $0.07 in Q3 2023, and $(1.1), or $(0.49) in Q4 2022.

Adjusted EBITDA1 totaled $(0.1) million in Q4 2023, compared to $(0.4) million in Q4 2022 and $0.7 million in Q3 2023.

Backlog at December 31, 2023, was $34.5 million, including $29.0 million of Engineering backlog, and $5.5 million of Workforce Solutions.

2023 FULL YEAR RECAP

Revenue in 2023 was $45.0 million a decrease of 5.6% compared to $47.7 million in 2022. The year over year decrease of $2.7 million was primarily due to due a wind down of large projects and a reduction in demand for staffing from our major customers as reflected in the reduction in orders.

Engineering revenue was $31.8 million in 2023 compared to $29.9 million in 2022. The year-over-year increase was primarily due to increased work on fixed price training and consulting projects and improved utilization of personnel on T&M projects.

Workforce Solutions revenue was $13.3 million in 2023 compared to $17.8 million in 2022. The year-over-year decrease in revenue was primarily due to a wind down of large projects and a reduction in demand for staffing from our major customers as reflected in the reduction in orders.

Gross profit in 2023 was $11.9 million, or 26.5% of revenue. This compared to gross profit of $11.9 million, or 25.0% of revenue in 2022. The increase in gross margin is primarily related to a mix of higher margins projects, shorter lead times and improved processes.

Operating expenses in 2023 were $18.7 million compared to $26.3 million in 2022, and the decrease was due to a $6.1 million goodwill and intangible asset impairment charge in 2022. The remaining decrease in operating expenses was due to cost saving initiatives put in place during 2023.

Operating loss was approximately $(6.8) million in 2023, compared to $(14.4) million in 2022.

Net loss in 2023 was $(8.7) million or $(3.51) per basic and diluted share, compared to net loss of $(15.3) million or $(7.18) per basic and diluted share in 2022.

Adjusted net loss1 totaled $(4.5) million, or $(1.79) per diluted share in 2023, compared to adjusted net loss of $(5.5) million, or $(2.57) per diluted share, in 2022.


Adjusted EBITDA1 totaled $(2.0) million in 2023, compared to $(3.5) million in 2022.

1 Refer to the non-GAAP reconciliation tables at the end of this press release for a definition of "EBITDA", “adjusted EBITDA” and “adjusted net income”.

CONFERENCE CALL

GSE Systems has scheduled a conference call for today, April 1, 2024 at 4:30 p.m. ET (1:30 p.m. PT) to review these results. Interested parties can access the conference call by dialing (833) 974-2453 or (412) 317-5784 or can listen via a live Internet webcast at: https://app.webinar.net/dGwbMDNVDRK. Access to the link is also available in the Investor Relations section of the Company's website at: https://www.gses.com/about/investors/.

A teleconference replay of the call will be available for seven days at (877) 344-7529 or (412) 317-0088, confirmation # 1964195. A webcast replay will be available in the Investor Relations section of the Company's website at https://www.gses.com/about/investors/ for 90 days.

ABOUT GSE SOLUTIONS

Proven by more than 50 years of experience in the nuclear power industry, GSE knows what it takes to help customers deliver carbon-free electricity safely and reliably. Today, GSE Solutions leverages top talent, expertise, and technology to help energy facilities achieve next-level power plant performance. GSE's advanced Engineering and Workforce Solutions divisions offer highly specialized training, engineering design, program compliance, simulation, and technical staffing that reduce risk and optimize plant operations. With more than 1,100 installations and hundreds of customers in over 50 countries, GSE delivers operational excellence. www.gses.com.

FORWARD LOOKING STATEMENTS

We make statements in this press release that are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These statements reflect our current expectations concerning future events and results. We use words such as “expect,” “intend,” “believe,” “may,” “will,” “should,” “could,” “anticipates,” and similar expressions to identify forward-looking statements, but their absence does not mean a statement is not forward-looking. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other important factors that could cause our actual performance or achievements to be materially different from those we project. For a full discussion of these risks, uncertainties, and factors, we encourage you to read our documents on file with the Securities and Exchange Commission, including those set forth in our periodic reports under the forward-looking statements and risk factors sections. We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Company Contact
  
Investor Contact
Kyle Loudermilk
  
Lytham Partners
Chief Executive Officer
  
Adam Lowensteiner, Vice President
GSE Systems, Inc.
  
(646) 829-9702
(410) 970-7800
  
gvp@lythampartners.com


GSE SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)


  
Three Months ended
December 31,
    
Twelve Months ended
December 31,
  
   
2023
    
2022
    
2023
    
2022
  
   
(unaudited)
    
(unaudited)
    
(unaudited)
    
(audited)
  
Revenue
  
$
10,215
    
$
10,816
    
$
45,041
    
$
47,734
  
Cost of revenue
    
7,611
      
7,761
      
33,111
      
35,824
  
Gross profit
    
2,604
      
3,055
      
11,930
      
11,910
  
                                 
Selling, general and administrative
    
3,350
      
3,775
      
16,092
      
17,028
  
Research and development
    
98
      
101
      
572
      
611
  
Goodwill and intangible asset impairment charge
    
454
      
-
      
1,391
      
7,505
  
Depreciation
    
41
      
91
      
185
      
304
  
Amortization of definite-lived intangible assets
    
108
      
168
      
508
      
868
  
Total operating expenses
    
4,051
      
4,135
      
18,748
      
26,316
  
                                 
Operating loss
    
(1,447
)
    
(1,080
)
    
(6,818
)
    
(14,406
)
                                 
Other income and expenses, net
                                
Interest expense
    
(449
)
    
(344
)
    
(1,932
)
    
(1,272
)
Change in fair value of derivative instruments, net
    
430
      
100
      
850
      
477
  
Other (loss) income, net
    
(684
)
    
(33
)
    
(802
)
    
(91
)
                                 
Loss before taxes
    
(2,150
)
    
(1,357
)
    
(8,702
)
    
(15,292
)
                                 
Provision for income taxes
    
103
      
159
      
22
      
51
  
                                 
Net loss
  
$
(2,253
)
  
$
(1,516
)
  
$
(8,724
)
  
$
(15,343
)
                                 
Net loss per common share - basic
  
$
(0.82
)
  
$
(0.68
)
  
$
(3.51
)
  
$
(7.18
)
Net loss per common share - Diluted
  
$
(0.82
)
  
$
(0.68
)
  
$
(3.51
)
  
$
(7.18
)
                                 
Weighted average shares outstanding - Basic
    
2,744,901
      
2,213,631
      
2,486,550
      
2,136,290
  
Weighted average shares outstanding - Diluted
    
2,744,901
      
2,213,631
      
2,486,550
      
2,136,290
  


GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

   
December 31, 2023
    
December 31, 2022
  
   
(unaudited)
    
(audited)
  
ASSETS
  
Current assets:
            
Cash and cash equivalents
  
$
2,250
    
$
2,789
  
Restricted cash, current
    
378
      
1,052
  
Contract receivables, net
    
10,166
      
10,064
  
Prepaid expenses and other current assets
    
879
      
2,165
  
Total current assets
    
13,673
      
16,070
  
                 
Equipment, software and leasehold improvements, net
    
754
      
772
  
Software development costs, net
    
750
      
574
  
Goodwill
    
4,908
      
6,299
  
Intangible assets, net
    
1,179
      
1,687
  
Restricted cash - long term
    
1,083
      
535
  
Operating lease right-of-use assets, net
    
413
      
506
  
Other assets
    
45
      
53
  
Total assets
  
$
22,805
    
$
26,496
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
  
Current liabilities:
                
Line of credit
  
$
-
    
$
-
  
Current portion of long-term note
    
810
      
3,038
  
Accounts payable
    
3,300
      
1,262
  
Accrued expenses
    
1,053
      
2,084
  
Accrued legal settlements
    
1,010
      
-
  
Accrued compensation
    
1,086
      
1,071
  
Billings in excess of revenue earned
    
5,119
      
4,163
  
Accrued warranty
    
176
      
370
  
Income taxes payable
    
1,701
      
1,774
  
Derivative liabilities
    
1,132
      
603
  
Other current liabilities
    
956
      
1,286
  
Total current liabilities
    
16,343
      
15,651
  
                 
Long-term note, less current portion
    
637
      
310
  
Operating lease liabilities noncurrent
    
357
      
160
  
Other noncurrent liabilities
    
126
      
144
  
Total liabilities
    
17,463
      
16,265
  
                 
Commitments and contingencies (Note 22)
                
                 
Stockholders' equity:
                
Preferred stock $0.01 par value; 2,000,000 shares authorized; no shares issued and outstanding
    
-
      
-
  
Common stock $0.01 par value; 60,000,000 shares authorized, 3,194,030 and 2,404,681 shares issued, 3,034,139 and 2,244,790 shares outstanding, respectively
    
32
      
24
  
Additional paid-in capital
    
86,983
      
83,127
  
Accumulated deficit
    
(78,708
)
    
(69,927
)
Accumulated other comprehensive income (loss)
    
34
      
6
  
Treasury stock at cost, 159,891 shares
    
(2,999
)
    
(2,999
)
Total stockholders' equity
    
5,342
      
10,231
  
Total liabilities and stockholders' equity
  
$
22,805
    
$
26,496
  


EBITDA and Adjusted EBITDA Reconciliation (in thousands)

References to “EBITDA” mean net loss, before considering interest expense, provision for income taxes, depreciation and amortization. References to Adjusted EBITDA excludes irregular or non-recurring items and are not directly related to the Company’s core operating performance. EBITDA and Adjusted EBITDA are not measures of financial performance under U.S. GAAP. Management believes EBITDA and Adjusted EBITDA, in addition to operating profit, net income and other U.S. GAAP measures, are useful to investors to evaluate the Company’s results because it excludes certain items that may, or could, have a disproportionate positive or negative impact on our results for any particular period. Investors should recognize that EBITDA and Adjusted EBITDA might not be comparable to similarly-titled measures of other companies. This measure should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with U.S. GAAP. A reconciliation of non-U.S. GAAP EBITDA and Adjusted EBITDA to the most directly comparable U.S. GAAP measure in accordance with SEC Regulation G follows:


  
Three Months ended
December 31,
    
Twelve Months ended
December 31,
  
   
2023
    
2022
    
2023
    
2022
  
   
(unaudited)
    
(unaudited)
    
(unaudited)
    
(audited)
  
Net loss
  
$
(2,253
)
  
$
(1,516
)
  
$
(8,724
)
  
$
(15,343
)
Interest expense, net
    
449
      
344
      
1,932
      
1,272
  
Provision for income taxes
    
103
      
159
      
22
      
51
  
Depreciation and amortization
    
223
      
344
      
1,015
      
1,511
  
EBITDA
    
(1,478
)
    
(669
)
    
(5,755
)
    
(12,509
)
Provision for legal settlement
    
260
      
-
      
1,010
      
-
  
Goodwill and intangible asset impairment charge
    
454
      
-
      
1,391
      
7,505
  
Advisory fees
    
28
      
-
      
288
      
-
  
Loss on debt conversion payments
    
763
      
-
      
763
      
-
  
Stock-based compensation expense
    
305
      
362
      
1,158
      
1,954
  
Change in fair value of derivative instruments, net
    
(430
)
    
(100
)
    
(850
)
    
(477
)
Adjusted EBITDA
  
$
(98
)
  
$
(407
)
  
$
(1,995
)
  
$
(3,527
)


Adjusted Net Loss and Adjusted EPS Reconciliation (in thousands, except per share amounts)

References to Adjusted Net Loss excludes certain items that are not directly related to the Company’s core operating performance and non-cash items that may, or could, have a disproportionate positive or negative impact on our results for any particular period. Adjusted Net Loss and Adjusted Loss per Share (adjusted EPS) are not measures of financial performance under U.S. GAAP. Management believes Adjusted Net Loss and Adjusted Loss per Share, in addition to other U.S. GAAP measures, are useful to investors to evaluate the Company’s results because the excluded items may, or could, have a disproportionate positive or negative impact on our results for any particular period. 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 U.S. GAAP. A reconciliation of non-U.S. GAAP Adjusted Net Loss and Adjusted Loss per common Share to U.S. GAAP net loss, the most directly comparable U.S. GAAP financial measure, is as follows:


  
Three Months ended
December 31,
    
Twelve Months ended
December 31,
  
   
2023
    
2022
    
2023
    
2022
  
   
(unaudited)
    
(unaudited)
    
(unaudited)
    
(audited)
  
Net loss
  
$
(2,253
)
  
$
(1,516
)
  
$
(8,724
)
  
$
(15,343
)
Provision for legal settlement
    
260
      
-
      
1,010
      
-
  
Goodwill and intangible asset impairment charge
    
454
      
-
      
1,391
      
7,505
  
Advisory fees
    
28
      
-
      
288
      
-
  
Loss on debt conversion payments
    
763
      
-
      
763
      
-
  
Stock-based compensation expense
    
305
      
362
      
1,158
      
1,954
  
Change in fair value of derivative instruments, net
    
(430
)
    
(100
)
    
(850
)
    
(477
)
Amortization of intangible assets related to acquisitions
    
108
      
168
      
508
      
868
  
Adjusted net loss
  
$
(765
)
  
$
(1,086
)
  
$
(4,456
)
  
$
(5,493
)
                                 
Adjusted loss per common share – Diluted
    
(0.28
)
    
(0.49
)
    
(1.79
)
    
(2.57
)
                                 
Weighted average shares outstanding – Diluted(a)
    
2,744,901
      
2,213,631
      
2,486,550
      
2,136,290
  

(a) During the year ended December 31, 2023, the Company reported a GAAP net loss and adjusted net loss. Accordingly, there was no dilutive shares from RSUs included in the adjusted earnings per common share calculation for the year ended December 31, 2023, that was considered anti-dilutive in determining the GAAP diluted loss per common share.