Kalle Ahl - The Equity Group, IR Jim Eberle - Chief Executive Officer Jeff Hough - Chief Financial Officer Larry Gordon - Senior Vice President, General Counsel

Sam Roboski - SER Asset Management

Greetings. And welcome to the GSE Systems Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host today, Kalle Ahl with The Equity Group. Please go ahead.

Thank you, Kevin, and good morning, 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 arise -- 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're encouraged to read GSE's documents on file with the Securities and Exchange Commission, including those set forth in periodic reports filed under the forward-looking statements in the 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. I’d now like to turn the call over to Mr. Jim Eberle, Chief Executive Officer of GSE Systems. Please go ahead, Jim.

Thanks, Kalle, and good morning. I'd like to welcome everyone to GSE Systems third quarter 2014 conference call. Also on today's call is our CFO, Jeff Hough; and Larry Gordon, our Senior Vice President, General Counsel. Earlier this morning we issued a press release covering our financial results for the third quarter 2014 and more significantly, we announced the acquisition of Hyperspring, LLC, as well as the acquisition of 50% interest in IntelliQlik, LLC. Hope you have had a chance to review these news releases. But if you have not, a copy of both can be found on our website at www.gses.com under the Investor Relations section. Before we discuss Hyperspring and IntelliQlik, I’ll spend a few minutes discussing our third quarter results. The challenges from the first half of 2014 and last year remain largely unchanged. We continue to face a number of weakness in our end markets, nuclear, fossil and process. However, despite this difficult environment, we grew our backlog by 27% to $45.7 million at September 30, 2014, as compared to $36.1 million at the end of the second quarter of 2014. We are encouraged by this improvement which reflects $17.6 million in new business, ranges across all of our sectors and multiple geographies in the third quarter 2014. In comparison, we booked new orders totaling $9.6 million in the second quarter of 2014, $6.3 million in the first quarter of 2014 and $11.3 million in the fourth quarter of 2013. New contracts in the third quarter included several of the delayed projects that we referenced on last quarter’s call and consist of $8.6 million for simulator upgrades and services in the nuclear power market, $5.1 million for new full-scope simulators and other projects in the fossil power market, $3.1 million for various tutorials and simulators for customers in the oil and gas industry and $800,000 for miscellaneous engineering services, training and 3D visualization projects. As you can see, our business win is truly in terms of broad range of end markets and each contract stand at Asia, Europe and North America. In the nuclear power space, we continue to see most operators on the sidelines surveying the change in energy industry landscape with the main exception of the Chinese. We continue to believe an industry data supports for position that nuclear power remain a part of the energy mix as we do a climate change and search for a low carbon or carbon free sources of energy production. On an increasing pressure to deal with the country’s critical air pollution problem, the Chinese have continued to articulate their commitment to nuclear energy. Inside China, we are seeing and targeting growth opportunities in other rapidly growing emerging nations with increase in power demand, across the Middle East and all of Asia. Additionally, we made some noteworthy progress leveraging our Immersive 3D gaming technology. We won and delivered the project to develop the smart meter inflation training application with the major utility in Europe. And we partnered with Teletrix to develop a first of a kind virtual radiation frisking application. These projects underpin our continued belief in this type of technology, changing the way the energy industry learns. Although we logged $5.1 million of new fossil orders in the third quarter of 2014, which is the best order performance from a fossil customer since the fourth quarter of 2011, U.S. fossil fuel powered utilities continue to delay capital expenditures through the economic and regulatory uncertainty of operating coal powered plants. The challenges included operating in an environment of low natural gas prices and meeting the requirements of the revised Cross-State Air Pollution Rule, CSAPR. The Supreme Court in April upheld CSAPR which allowed the EPA to regulate air pollution from power plants across the state line. The rule requires 28 states in the East, Midwest and South to cut back on the Sulphur and Nitrogen emissions from coal-fired power plants that contributes significantly to air problems in other states. In the third quarter 2014, we incurred severance cost totaling $272,000 in the United States. We continue to closely monitor our management and administrative costs was declined by $215,000 this quarter as compared to the third quarter of 2013. Our balance sheet remained strong. As of September 30, 2014, we had $16 million in unrestricted cash, working capital of $17 million and no long-term debt. Now on to Hypespring and IntelliQlik. We’ve been promising for sometime that we completed significant transaction sometime this year. The acquisition of Hyperspring and purchase of a 50% interest in IntelliQlik today delivers on that promise. Hyperspring provides training and staff augmentation search to the energy industry, primarily the U.S. nuclear market. While most of Hyperspring employees are turning instructors, Hyperspring also supports key operations position by providing experienced personnel in area such as plant operations and engineering, procedure writing, corrective action management, work management and surveillance. Hyperscreen will add approximately $18 million in annual revenue and will be immediately accretive to our results. It will operate as a wholly-owned subsidiary of GSE Power. Mr. Paul Abbott, the current CEO of Hyperscreen will continue in his role under three-year employment agreement. So we are excited to add an industry leader in training and staff augmentation services and expect significant synergy and cross-selling opportunities, as we leverage GSE’s current portfolio of products and services to address the challenges of Hyperscreen’s customer base. At the same time, it is just a significant opportunity to introduce Hyperscreen services to many of GSE’s traditional customer base. In cashing with the acquisition of Hyperscreen, we invested $250,000 for a 50% interest in Intelliqlik, LLC and are obligated to contribute an additional $250,000, if Intelliqlik attains certain performance milestones. Intelliqlik is developing a software platform for online learning and learning management for all energy sectors including nuclear, non-nuclear, oil and gas and hydroelectric. The Intelliqlik platform will expand to include applications to support plant engineering, operations and maintenance, as well as provide a platform for software-as-a-service to deliver learning materials, industry recruitment services and specialized simulator training programs. We view Intelliqlik as a key component of web-based learning, as it will provide a proven systemic approach to training with the conveniences that modern students are acclimated to, such as flexible scheduling, a student-centered environment, online classes and computer simulation. For years, we have described ourselves as a simulation, training and engineering company, providing mainly simulation and engineering solutions to improve designs, de-risk projects and train operators. With the acquisition of Hyperspring and the investment in Intelliqlik, we are transforming into a Human and Plant Performance Improvement Company. Together, we will improve human performance to turnkey training solutions, differentiated by our unique visualization and simulation environment, with a next-generation learning, delivery platform through IntelliQlik and through a staff of instructors, engineers and specialists to support our clients performance goals. When we further add our engineering simulation capabilities, we not only address human performance, but the performance of entire plant from design through operations and optimization. Our strategic goal has always been to diversify our revenue base and develop new products and services to address the opportunity, which lies at the intersection of increasing global energy demand and inevitable shortage of qualified energy workforces. Our acquisition of Hyperspring and the formation of IntelliQlik are significant steps towards reaching that goal. I will now turn the conversation over to Jeff Hough, who will review our results for the third quarter.

Thanks, Jim, and thanks to each of you for joining us today. I want to remind everyone that Hyperspring’s results were not included in GSE’s results of operations for Q3 2014. They will be included from the date of acquisition in our results for the fourth quarter. Revenue for the third quarter 2014 declined by 34.2% to $7.8 million from $11.9 million in the third quarter of 2013, due mainly to a $3.7 million decline in revenue from the $36.6 million Slovakia simulator project, which ended in April 2014 and a $0.6 million decline in revenue from fossil fuel simulation projects. Gross profit in the third quarter 2014 was $2.5 million, compared to $3.1 million in the Q3 2013. As a percentage of revenue, gross profit improved to 31.4% from 25.9% in last year’s third quarter, reflecting a decrease in revenue from the Slovakia contract, which generated lower than average gross margin. Selling, general and administrative cost in the third quarter 2014 was $4.2 million, up from $3.8 million in the third quarter of 2013. SG&A was higher in the Q3 2014, mainly due to increased software product development expenses as well as severance costs related to our U.S. operations. Operating loss for the third quarter 2014 was $1.9 million, compared to an operating loss of $922,000 in the third quarter 2013. Gain on derivatives was $69,000 in the third quarter of 2014, compared to a loss of $78,000 in the third quarter of 2013. Provision for income taxes was $61,000 in the third quarter of 2014, compared to a benefit of $32,000 in the third quarter of 2013. The net loss for the third quarter 2014 was $1.9 million or $0.11 per basic and diluted share, compared to a net loss of $1.0 million or $0.06 per basic and diluted share in the third quarter 2013. EBITDA loss, earnings before interest, taxes, depreciation and amortization for the third quarter 2014 was $1.7 million, compared to EBITDA loss of $863,000 in the third quarter 2013. GSE’s cash position at September 30, 2014 was $16 million, excluding $4.2 million of restricted cash, as compared to cash and equivalents of $18.1 million, excluding $1 million of restricted cash at June 30, 2014. In accordance with an amendment to the company’s Master Loan and Security Agreement with our Bank, an additional $3.1 million was placed in a restricted cash account in September 2014 as collateral for the company’s outstanding letters of credit and is the reason for the increase in the restricted cash between the two quarters. The company has $1.2 million receivable from Beijing Unis Investment Company for the acquisition by UNIS in July 2013 of GSEs 49% interest in GSE-UNIS Simulation Technology Company. We anticipate receiving this $1.2 million in the fourth quarter of 2014, as approval has been received from the Chinese Business Registration Agency for UNIS to make the payment. At the end of the third quarter, we had no long-term debt and working capital of $17 million. On November 14, 2014, GSE completed the acquisition of Hyperspring for an aggregate of $3 million at closing, subject to adjustment based on a subsequent determination of the actual working capital of Hyperspring at closing. In addition, GSE may be required to pay the sellers up to an additional $8.4 million in cash, if Hyperspring attains certain EBITDA targets for the three-year period ending November 13, 2014. Based upon its unaudited results of operations for the year ended December 31, 2013 and the nine months ended September 27, 2014, Hyperspring generated revenue of approximately $19.2 million and $13 million, respectively. We expect the acquisition will be immediately accretive to earnings. Based upon the elimination of certain costs, we believe that if we had owned Hyperspring on January 1, 2013 and January 1, 2014 on a pro forma basis, Hyperspring would have generated EBITDA of approximately $1.4 million during 2013 and $1.2 million during the first nine months of 2014. For more information regarding Hyperspring, please refer to our press release, which was issued this morning. I’ll now turn the conversation back to Jim.

Thanks Jeff. I’ll now ask the Operator to open the floor for questions.

Thank you. [Operator Instructions] Our first question today is coming from Sam Roboski from SER Asset Management. Please proceed with your question. Sam Roboski - SER Asset Management: Yeah. Good morning gentlemen.

Good morning Sam. Sam Roboski - SER Asset Management: Could you talk about the profitability? You talked about the EBITDA, could you talk about the net, the GAAP earnings on this acquisition? You’re paying $3 million and you could pay up to $8.4 million? What kind of profits do they have to earn and what kind of profits do we expect them to earn?

I will let our General Counsel, Larry Gordon, address this. He is also the head of our M&A.

Sam, the answer to question two, to earn this higher earnout, they’d have to generate $5 million of EBIT per year to get the entire additional $8.4 million, they get an additional $5.4 million if they generate approximately $2million of EBIT per year. Sam Roboski - SER Asset Management: So that’s pretty significant. And Paul Abbott, is he the seller or just -- what runs the company?

He is one of the sellers, Sam. So there were four partners in the business. Three of the partners are coming with the acquisition, Paul being the CEO and Dale Jennings, one of the selling partners is going to run IntelliQuick, which we purchased for 50% stake-in. Sam Roboski - SER Asset Management: Okay. I am trying to understand, does this means that, when would you become profitable on the total entity, based on what is your visibility on profitability?

But it’s one other thing. It’s a primary focus for Jeff, his staff and me is to take a look at -- we talked about where the additional SG&A spend is, it’s been in R&D, in business development primarily. So we’re doing a deep dive on that, as you can tell, we closed the significant amount of work in the third quarter. Obviously we’ve had revenue some in the fourth quarter and following quarters. So we are working and getting in the middle of budget time and we’re working to right size cost with revenue excluding the acquisition. So if you look at the base business and we’re working on that and we look at the acquisition to be accretive on top of what we’re going to do with the base business. So, we’ve restructured Sweden. We see Asia growing. We’ve made some adjustments in the U.K. And we focus here, as you saw, that there was a discussion of some severance costs and so you can see, we are making some moves in the U.S. as well. Sam Roboski - SER Asset Management: All right. It sounds good. Good luck.

Thank you, Sam.

Thank you. [Operator Instructions] Mr. Gordon, there are no further questions at this time. I’d like to turn the call back over to management for any further and closing comments.

I would just like to thank everyone for their continued interest in GSE System. I would like to thank all of the hardworking women and men in GSE who help to satisfy our customers everyday. And I would like to welcome our newest employees from Hyperspring and Dale Jennings, our partners in the IntelliQlik enterprise.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.