Kalle Ahl - IR Equity Group Kyle Loudermilk - CEO Jeff Hough - CFO Larry Gordon - SVP, General Counsel

Greetings and welcome to the GSE Systems 2015 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Kalle Ahl, with The Equity Group. Thank you. You may begin.

Thank you, Adam, 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 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 would now like to turn the call over to Mr. Kyle Loudermilk, Chief Executive Officer of the GSE Systems. Kyle, please go ahead.

Thanks, Kalle, and good afternoon everyone. I would like to welcome everyone to GSE Systems second quarter 2015 conference call. Also on today’s call are Jeff Hough, our CFO and Larry Gordon, our Senior Vice President and General Counsel. Before Jeff reviews our second quarter financial results, I’d like to first introduce myself and provide you all with some additional background, share some of my initial impressions with GSE based on my first 10 days as the Company’s Chief Executive Officer. As many of you know, my background is in technology and software, specifically software that optimizes operating performance for complex industries and enterprises. My career spending roles with MicroStrategy, Datatel and Aspen Technology have focused on creating value through identifying, defining, building and delivering solutions to clients that solve complex problems in an insightful user friendly fashion. What attract to me most to GSE are many of the raw ingredients I’ve seen in my prior experiences unique technology with a high barrier to entry, serving and compelling client base, a client base that is in need of solutions to address critical challenges and opportunities to transform the business model for sustainable and predictable growth and dedicated employees with unique skills. We have a solid balance sheet and net debt. From my perspective these raw ingredients provide a compelling opportunity. GSE’s ongoing transformation is also compelling. Over the last several years, the Company has evolved from a world leader in real time high fidelity simulation, training and engineering solutions into a premier performance improvement Company. For our clients operational success depends on two things [indiscernible]. GSE’s legacy is developing leading edge customer stimulation is well known. Last year’s acquisition of Hyperspring and the investment in IntelliQlik position GSE to more completely address a significant issue facing the energy industry with respect to staffing and training, while diversifying our business model. With these pieces in place, from my perspective, it is now about identifying and fostering the unique core capabilities with GSE that we offer to drive the next step of the Company’s evolution specifically with respect to our business model. My goal is over time to transform our model towards recurring managed streams of revenue with less reliance on project based revenue. This will be a process that I am confident we can get it done. Although, early, my belief in GSEs potential has strengthened over my first 10 days here after meeting with the number of our employees and managers and getting better acquainted with GSE’s businesses. While it’s too early to predict where we’ll be 12 months from now, I can promise that GSE will look, act and feel that the Company moving towards a brighter and more sustainable future. As an executive whose well versed in strategy and analytics, I’m here to defining clearing compelling strategic plan for the Company, set proper goals that we can measure our performance, hold ourselves accountable as we execute on the plan and make fact based decisions as we execute. GSE’s recent financial performance is disappointing our investors and we clearly need to address that, it’s unacceptable. I am here to make sure we create value for our customers, grow our business as a result and in turn create wealth for investors. The first step in that process will to be review our global operations, identify efficiency gains, carry us where growth can be obtained and profit maximized. We’ll further identify growth prospect within our existing markets and explore adjacencies that offer us sustainable growth. I expect by our third quarter call in November I’ll be in a much better position to provide a strategic roadmap, discuss some of the actions needed to us to reach our goals and identify model expense metrics that will help you gauge our progress. In the interim I expect to meet and/or speak with many of our investors and I welcome the opportunity to hear your thoughts and share my impression. In closing, I want to say again how really excited I am to be here, in fact I’m delighted, I’m very enthusiastic about our future. And with that I’ll now turn it over to Jeff for his review of the quarter.

Thanks Kyle and thank you everyone for joining us today. Earlier today we issued a press release covering our financial results for the second quarter of 2015, hopefully you’ve had a chance to review this news release. If you have not, a copy can be found on our Web site at www.gses.com under the investor relations section. I like to remind everyone that as a result of our acquisition of Hyperspring, we are now reporting selected financial results for two business segments. Performance improvement solutions which provide simulation, engineering and training solutions and services to the nuclear and fossil fuel car industry and to the chemical and petrochemical industries and Staff Augmentation which provides personnel to fulfill staff positions on a short-term basis to energy industry customers. Hyperspring’s results are included in the Staff Augmentation segment. I will begin with an update on backlog and new business. We ended the quarter with $57.5 million of backlog, up from $52.4 million at the end of the first quarter 2015 and up from $48.4 million at the end of fourth quarter 2014. Our backlog at the end of the second quarter 2015 includes 9 million Staff Augmentation backlog and $48.5 million of Performance Improvement Solutions backlog. The Performance Improvements Solutions backlog is our highest since December 31, 2012 when the backlog was 51.9 million of which 11.7 million was related to our large full scope simulator project with a Slovakian customer. We expect approximately 43% of our quarter end backlog to convert to revenue in 2015. In the second quarter 2015, we had a strong quarter bookings with 18.8 million of new business orders across all of our sectors in multiple geographies. In comparison, we’ve booked new orders totaling 18.1 million in the first quarter of 2015, 8.4 million in the fourth quarter of 2014, 17.6 million in the third quarter of 2014 and 9.6 million in the second quarter of 2014. By segments this quarter we recorded Performance Improvement Solutions orders totaling 12.7 million compared to 11.1 million in the first quarter 2015 and 9.6 million in the second quarter of 2014. Staff Augmentation orders totaled 6.1 million compare to 7 million in the first quarter of 2015. New Performance Improvement Solutions contracts of the second quarter 2015 included 7.7 million for simulator upgrades and services in the nuclear power market, 2.9 million for new full scope simulators and other projects in the fossil power market, 0.9 million for various tutorials and simulators for customers in the oil and gas industry, and 1.2 million for miscellaneous engineering services and training projects. Now onto a review of our financial results for the second quarter, total revenue for the second quarter 2015 was 13.6 million which included 5.4 million of incremental Staff Augmentation revenue from Hyperspring compared to revenue of 8.3 million in the second quarter of 2014. Performance Improvement Solutions revenue was basically flat as compare to the second quarter of 2014. Gross profit in the second quarter of 2015 was 2.9 million compared to 2.6 million in the second quarter of 2014. Staff Augmentation gross profit was 0.6 million or 10.8% of segment revenue in the second quarter of 2015. Performance Improvement Solutions gross profit was 2.3 million or 28.4% of segment revenue in the second quarter of 2015 down from 2.6 million, or 32% of segment revenue in the second quarter of 2014. The decrease in Performance Improvement Solutions gross margin as a percent of segment revenue reflects lower margins on training and process simulation projects in 2015. As the percentage of revenue, consolidated gross margin declined to 21.4% from 32% in last year’s second quarter, due to the incremental Hyperspring’s staff augmentation revenue, which has a lower margins than Performance Improvement services revenue. Selling, general and administrative cost in the second quarter of 2015 was 4 million down from 4.5 million in the second quarter 2014. SG&A was lower in the second quarter 2015 mainly due to three reasons. First, the prior year restructuring cost associated with the downsizing of GES's Swedish operations and reduced business development and marketing expenses. And these were partially offset -- these adjustments were partially offset with an increase in the loss from the change in fair value contingent consideration related to acquisition which is also known as accretion expense, which is mainly associated with the deferred contingent consideration due to the Hyperspring members if certain EBITDA targets are met and if their current contract with TVA is renewed. Accretion expense was 513,000 in the second quarter 2015 versus 20,000 in the second quarter of 2014. Operating loss for the second quarter 2015 was 1.3 million compared to an operating loss of 2 million in the second quarter 2014 as previously mentioned the 1.3 million operating loss for the second quarter 2015 included 513,000 of accretion expense. Loss on derivative was 31,000 in the second quarter 2015 and the second quarter 2014 we had a gain of 5,000. Our provision of income taxes was 73,000 in the second quarter of 2015 compared to 47,000 in the second quarter of 2014. The net loss for the second quarter 2015 was 1.5 million, or $0.08 per basic and diluted share compared to a net loss of 2 million or $0.11 per basic and diluted share in the second quarter of 2014. EBITDA loss, earnings before interest, taxes, depreciation, and amortization for the second quarter 2015 was 1.2 million compared to an EBITDA loss of 1.8 million in the second quarter 2014. Excluding loss from the change in fair value of contingent consideration adjusted EBITDA loss for the second quarter 2015 was 643,000 compared to an adjusted EBITDA loss of 1.8 million in the second quarter of 2014. GSEs cash position at June 30, 2015 was 9.8 million excluding 4.5 million of restricted cash as compared to cash and equivalents of 13.6 million excluding 4.2 million of restricted cash at December 31, 2014. The decline in GSEs cash position is due in part to the following cash outflows during the first half of 2015, 1.9 million related to changes in various working capital items, 1.1 million of capital expenditures including software developments and 0.3 million for payment of contingent considerations through the acquisition of Envision Systems Inc. [indiscernible] June 30, 2015, we collected $1 million from a Chinese customer that have been overdue, our cash position at August 12, 2015 was approximately 12.4 million. At the end of the second quarter we had no long term debt and working capital of 9.9 million. I’ll now turn the conversation back to Kyle.

Thanks Jeff. Now I’ll ask the operator to open the floor to questions.

Okay. Well, it seems like we don’t have any questions. So, with that, I’d like to thank everybody for joining us today. I hope we get a chance to meet and speak with many of you in the coming months and thank you again for your time and interest in GSE.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.