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GS

GSE SYSTEMS INC (GVP)·Q2 2024 Earnings Summary

Executive Summary

  • Revenue was $11.7M, up sequentially vs Q1 2024 ($11.3M) but down year over year vs Q2 2023 ($12.4M); gross margin expanded to 31.3% (from 28.5% in Q1 2024 and 26.0% in Q2 2023), and adjusted EBITDA turned positive at $0.6M, highlighting improved utilization and cost control .
  • Net loss improved to $(0.9)M, or $(0.26) per share, versus $(2.0)M and $(0.63) in Q1 2024 and $(1.5)M and $(0.62) in Q2 2023; operating income was ~$0.3M vs losses in prior periods .
  • Backlog ended Q2 at $34.7M (Engineering $30.4M; Workforce Solutions $4.3M); management noted softer order flow and project timing delays despite a “respectable” pipeline .
  • The company announced a definitive agreement to be acquired by Pelican Energy Partners after quarter-end and did not host an earnings call, limiting formal guidance commentary; this M&A is a likely stock narrative catalyst .

What Went Well and What Went Wrong

What Went Well

  • Engineering segment strength drove higher gross profit and margin; Engineering revenue rose to $9.3M (from $8.7M in Q1) with improved project efficiency, lifting gross margin to 31.3% .
  • Adjusted EBITDA positive at $0.6M for Q2 and the first half, reflecting utilization improvements and tight OpEx control; operating income turned positive (~$0.3M) .
  • Management execution: “improved utilization… improved gross profit margin and continued diligence on expense controls… positive adjusted EBITDA of $0.6 million during the quarter” — Ravi Khanna, CEO .

What Went Wrong

  • Order flow was “a bit softer” with projects “pushed to the right,” underscoring demand timing uncertainty; Workforce Solutions revenue declined sequentially and year over year to $2.4M (vs $2.6M in Q1 and $3.3M in Q2 2023) .
  • Continued GAAP net loss ($(0.9)M), with a sizable negative fair value derivative impact ($(0.736)M) contributing to bottom-line pressure despite operating improvement .
  • Sequential backlog decline to $34.7M (from $37.7M in Q1), indicating near-term demand moderation even as Engineering backlog remains the majority .

Financial Results

Consolidated P&L and Profitability

MetricQ2 2023Q4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$12.4 $10.22 $11.28 $11.73
Gross Profit ($USD Millions)$3.22 $2.60 $3.22 $3.67
Gross Margin (%)26.0% 25.5% 28.5% 31.3%
Operating Income (Loss) ($USD Millions)$(0.78) $(1.45) $(1.53) $0.29
Net Income (Loss) ($USD Millions)$(1.50) $(2.25) $(1.99) $(0.85)
Diluted EPS ($USD)$(0.62) $(0.82) $(0.63) $(0.26)
EBITDA ($USD Millions)$(0.44) $(1.48) $(1.23) $(0.27)
Adjusted EBITDA ($USD Millions)$(0.36) $(0.098) $(0.45) $0.56

Segment Revenue

SegmentQ2 2023Q4 2023Q1 2024Q2 2024
Engineering ($USD Millions)$9.0 $7.1 $8.7 $9.3
Workforce Solutions ($USD Millions)$3.3 $3.1 $2.6 $2.4

KPIs

KPIQ4 2023Q1 2024Q2 2024
Backlog ($USD Millions)$34.5 $37.7 $34.7
Cash + Restricted Cash ($USD Millions)$3.7 $2.8 $2.7

Non-GAAP adjustments materially impacted reported metrics: change in fair value of derivatives was $(0.736)M in Q2, and stock-based compensation $(0.274)M; these items are excluded in adjusted EBITDA and adjusted net income reconciliations .

Guidance Changes

No formal guidance provided; company did not hold an earnings call due to the pending Pelican Energy Partners transaction.

MetricPeriodPrevious GuidanceCurrent GuidanceChange
All metricsQ3 2024 / FY2024NoneNoneNo guidance provided; conference call canceled due to pending acquisition

Earnings Call Themes & Trends

Company did not host a Q2 2024 call. Narrative trends are drawn from press releases across periods.

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
Demand/Orders2023: Engineering new orders +70.9% YoY; Workforce Solutions challenged; streamlining improved adj. EBITDA in 2H 2023 . Q1 2024: Orders down YoY; Engineering orders −18%; pipeline improving with management transition .Order flow “a bit softer”; timing delays with projects pushed out despite “respectable” potential order flow .Softening near term; timing uncertainty persists .
Mix & MarginsQ4 2023: Mix shift and cost alignment reduced margins; Q4 gross margin 25.5% . Q1 2024: Margin improved to 28.5% on higher-margin projects; Engineering GM 33.3% .Gross margin expanded to 31.3% on Engineering growth and project efficiency .Improving margins led by Engineering .
Workforce Solutions2023: Reduced demand and staffing wind-downs pressured segment revenue . Q1 2024: Revenue down YoY to $2.6M .Further decline to $2.4M; demand reduction continues .Persistent headwinds .
BacklogQ4 2023: $34.5M total backlog . Q1 2024: $37.7M total backlog .$34.7M total backlog (Engineering $30.4M; Workforce $4.3M) .Down sequentially; still solid base .
Strategic/M&AQ4 2023–Q1 2024: Streamlining and management changes (new CEO/COO in Q1) .Entered definitive agreement to be acquired by Pelican Energy Partners post quarter .M&A shifts narrative; reduces near-term guidance focus .

Management Commentary

  • “Execution of our strategic plan of improved utilization… improved gross profit margin and continued diligence on expense controls… positive adjusted EBITDA of $0.6 million… order flow in the quarter was a bit softer… projects are consistently getting pushed to the right… definitive agreement with Pelican Energy Partners… highly beneficial for GSE shareholders, customers and employees.” — Ravi Khanna, President & CEO .
  • Comparative context from prior quarter: “Engineering segment continues to perform well… Engineering GM of 33.3% driving consolidated gross margin of 28.5%… expect to continue our strong gross margin” — Emmett Pepe, CFO (Q1 2024) .

Q&A Highlights

  • No Q&A; company did not conduct a conference call due to the impending Pelican transaction .

Estimates Context

  • S&P Global/Capital IQ consensus estimates for Q2 2024 were unavailable for GVP at the time of this analysis, preventing comparison vs Street expectations. Coverage appears limited; investors should note the lack of consensus visibility [SpgiEstimatesError for GVP].
MetricQ2 2024 ConsensusActual
Revenue ($USD Millions)N/A$11.73
Primary EPS ($USD)N/A$(0.26)

Key Takeaways for Investors

  • Margin-led improvement: Gross margin expanded to 31.3% and operating income turned positive, underpinned by Engineering mix and efficiency; adjusted EBITDA positive despite GAAP net loss, indicating operational progress .
  • Demand timing risk: Management flagged softer orders and project timing delays; sequential backlog decrease to $34.7M warrants monitoring for near-term revenue cadence, particularly in Workforce Solutions .
  • Segment divergence: Engineering revenue and margins are the growth/margin engine; Workforce Solutions remains under structural pressure from reduced customer staffing needs .
  • Non-GAAP and derivatives: A meaningful negative derivative fair value change weighed on GAAP results; adjusted metrics better reflect core operations this quarter .
  • Strategic reset via M&A: The Pelican Energy Partners acquisition post quarter-end reframes the equity story and likely reduces stand-alone guidance/communication in the interim; integration and transaction terms will drive the stock narrative near term .
  • Near-term trading setup: Without consensus estimates or a call, headlines (M&A progress, backlog wins) may dominate; watch for Engineering order conversions and any Workforce stabilization for confirmation of margin durability .
  • Medium-term thesis: If Engineering utilization and mix sustain, margin expansion could continue; demand timing and derivative exposure remain watch items, and M&A close/process will determine ultimate shareholder outcome .