GSE Systems, Inc. (NASDAQ:GVP) Q4 2021 Earnings Conference Call March 31, 2022 4:30 PM ET
CompanyParticipants
Adam Lowensteiner – Vice President of Lytham Partners
Emmett Pepe – Chief Financial Officer & Treasurer
Kyle Loudermilk – President & Chief Executive Officer
Conference Call Participants
Operator
Good afternoon and welcome to the GSE Systems Inc. Fourth Quarter and Fiscal Year 2021 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.
I would now like to turn the conference over to Adam Lowensteiner with Lytham Partners. Please go ahead.
Adam Lowensteiner
Thank you, Gary and good afternoon, everyone and thank you for all of us — for everyone for joining us today to review the financial results for GSE Systems for the fourth quarter and fiscal year ended December 31, 2021. With us on the call representing the company today are Kyle Loudermilk, President and CEO of GSE Systems; and Emmett Pepe, Chief Financial Officer of GSE Systems.
Before we begin, I would like to remind everyone that the statements made during the course of this call may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended in 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 material or 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 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 or 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. Investors should recognize that these non-GAAP figures may not be comparable to similarly tied 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 the most directly comparable GAAP measures in accordance with SEC Regulation G can be found in the company’s earnings release.
With that, I’d like to now turn the call over to Mr. Kyle Loudermilk, President and Chief Executive Officer of GSE Solutions. Kyle, please proceed.
Kyle Loudermilk
Thank you, Adam. I’d like to welcome everyone to GSE’s fourth quarter and fiscal 2021 financial results conference call.
Earlier today, we issued a press release detailing our financial results. Hopefully, you’ve had a chance to review this news release. But if not, a copy can be found on our website at www.gses.com under the News section. To lay out the agenda for today’s call, I plan on opening my remarks with an overall discussion of the industry, then drill down into commentary on the quarter and fiscal year’s highlights and the status of each of our divisions, including our engineering segment, also known as the Performance Improvement Solutions; and Workforce Solutions, also known as Nuclear Industry Training Consulting or NITC as well as our SaaS-based software solutions. Emmett Pepe will then give a recap of the financial results and we will then open the call to any questions at the end.
To start my formal discussion with a macro overview, I’d like to say that our thoughts and prayers are with the citizens of Ukraine. The nuclear industry owes a lot to the country of Ukraine which has several nuclear facilities and, of note, has had deployments of GSE simulators beginning in the late 1980s. Despite a raging war, the nuclear power industry in Ukraine continues to operate and focus on safety with disasters seemingly diverted at the six unit Zaparosa [ph] nuclear power plant the world owes the operators of the plant tremendous gratitude and respect for their expertise and commitment to safety.
As a bit of background, after the Chernobyl accident in 1986, there was a keen interest in improving the safety of Russian-designed reactors. In 1989, Zaporizhzhia nuclear power plant reached out to the West to address this need by adopting modern robust operator training simulators. These simulators are used throughout the world to allow operators to practice normal operations as well as how to respond in the event of equipment failure or other abnormal conditions. Unit 5 at the Zaporizhzhia nuclear power plant was the first Russian design reactor site to receive one of these modern simulators through the international nuclear safety programs sponsored by the U.S. Department of Energy. Since then, GSE has provided numerous such simulators throughout Eastern Europe, including Ukraine and specifically two additional simulators for Units 1 and Units 3 at Zaporizhzhia.
Zaporizhzhia plant’s commitment to improve safety and training didn’t stop with the purchase of the simulator. They embarked on an extensive effort to learn from industry peers, resulting in a multiyear program conducted by Western companies to teach and help implement the systemic approach to training methodology adopted by the U.S. nuclear industry to develop robust and focused training programs. The fact that the plant was able to avoid a catastrophe during the war was years in the making through the plant’s commitment to safety and training.
While GSE currently has minimal active project exposure in Ukraine, the country is near and dear to us and, again, our prayers are with them. As the invasion demonstrates, reliance on fossil fuels is catastrophic for the world on two dimensions: First, the West is funding the very despotism that leads to chaos in humanitarian disasters, such as that unfolding in Ukraine. Second, consumption of fossil fuels for power generation, even clean natural gas, only further delays the transition to a zero-carbon grid for the West. Fortunately, the world can defund despotic regimes while accelerating the transition to a carbon-free future. Nuclear power is a key means by which to accomplish this and there are steps that the West seems to be prepared to take to accelerate this transition.
In driving to zero-carbon economy, wind and solar simply will not get the West there in and of themselves. Stable, consistent round-the-clock power generation is required. And the more wind and solar that comes on to the grid, the more baseload power is required. The solution thus is nuclear power. Poland, the Czech Republic, Slovakia and nonadjacent veneer states of Bulgaria and Romania have each announced plans over the past year to build new substantial nuclear power generation capacity. After witnessing this Ukrainian crisis unfold, it is no wonder that these former Eastern bloc countries plan to establish energy security and independence from Russian energy. It is no surprise that given recent geopolitical issues that energy security has again come to the forefront. Many countries are recognizing two things: the consistent and affordable energy nuclear offers and how nuclear provides a carbon-free source of energy, two major pluses.
But even putting aside geopolitics, many thought leaders and renowned investors are pointing out the importance that nuclear energy has to offer and bringing the discussion to the forefront. One of the first to take to Twitter and highlight the importance of nuclear power was Elon Musk, starting with how — stating how existing nuclear power plants must not be shut down. Then came Jack Dorsey’s comment of generating more energy, not less, increases the quality of life for all, using a nuclear symbol in emoji. Most recently, it was a renowned venture investor, Mark Andreessen. He stated that the world should build 1,000 new state-of-the-art nuclear power plants in the U.S. and Europe right now. So it appears that even Silicon Valley has come around to the view that nuclear energy provides one of the few sustainable, scalable and affordable sources of carbon-free energy. Not only have they come around, many are putting their money and wealth to work in nuclear. Billionaires, including Bill Gates, Jeff Bezos and Peter Thiel, have opened their wallets to back next-generation nuclear companies. And venture investors have plot a record $3.4 billion into nuclear start-ups in 2021, more than every year over the past decade combined according to research firm PitchBook.
In addition to these thought leaders and venture capitalists focusing on nuclear, more importantly, energy and utility companies have taken action. The most notable example is Exelon spinning off Constellation Energy which consists of zero-carbon power generation assets, almost entirely comprised of the nuclear fleet. Energy Harbor out of Ohio recently announced its plans to transition into a 100% carbon-free energy infrastructure company in the next year by exiting it’s fossil fuel businesses.
John Judge, Energy Harbor’s President and CEO said, over the past two years, it’s been made abundantly clear to us that our customers, communities and capital market partners recognize the value of partnering with Energy Harbor as we help transform clean energy supply. The carbon-free, reliable baseload power generated by our nuclear units is recognized as critical infrastructure required for the U.S. clean energy transition. With our exit from fossil fuel generation, we will be uniquely positioned as one of the few 100% carbon-free energy infrastructure and supply companies in the United States.
Another utility in GSE customer, PSE&G in New Jersey recently shared on their social media channels about the divestiture of their few remaining fossil fuel assets and helping the state of New Jersey to meet it’s goal of achieving 100% carbon-free energy supply by 2050. New Jersey admits that the backbone of it’s carbon-free energy supply continues to be nuclear energy, currently delivering more than 90% of the state’s carbon-free energy and as a national leader when it comes to generating carbon-free electricity, thanks in part to its nuclear plants which provide nearly 40% of the state’s total energy supply. American Electric Power, also a customer of GSE, recently announced plans to spend $38 billion over the next five years to construct a more efficient grid and deliver custom clean energy solutions to customers. The plan is slated to help deliver low-cost, reliable energy to customers and help invest in a clean energy future.
Last but not least, governments around the world are pushing forward to drastically reduce their respective carbon footprints. In December, GE Hitachi Nuclear Energy, BWXT Canada and Synthos Green Energy announced their intention to cooperate in deploying a BWRX-300 small modular reactors in Poland. This comes on the heels of Poland decommissioning it’s coal-fired plants and embracing newer technologies that can provide sustainable and clean and secure energy. In addition, GE Hitachi has also been selected by Ontario Power Generation as a technology partner for the Darlington new nuclear project and is working with Ontario Power to deploy BWRX-300 at the Darlington site that should be complete as early as 2028.
In February of this year, SMR, small modular reactor manufacturer NuScale, signed a definitive agreement with KGHM, a — based leader in copper and silver production and large industrial energy user to deploy the first SMR in Poland. Under this agreement, NuScale will work with KGHM to support the deployment of SMR technology. And together, the organizations will take steps towards deploying a first new scale voyager power plant in Poland as early as 2029. KGHM expressed that they were pleased to sign this deal to help lead the initiation of a 100% carbon-free energy project and deliver on its commitment to decarbonize. Bulgaria similarly announced their plans to build a NuScale SMR facility, targeting to be the first operable NuScale plant and coming online before the end of the decade. Bulgarian Energy Holding has signed a memorandum of understanding with NuScale to look at the possibility of replacing it’s coal boilers with SMRs, among other things. This comes on the heels of Bulgaria committing to stop using coal for electricity generation between 2037 and 2040. NuScale’s SMRs would produce 77 megawatts of energy to be built in packs of 4, 6 or 12 with plans to possibly to deploy the SMRs at current coal-fired power plant sites.
On the subject of NuScale, they announced on December 14, 2021, a definitive business combination agreement with Spring Valley Acquisition Corporation, NASDAQ SV. Upon the closing of the business combination, NuScale will become a publicly traded entity under the new ticker symbol SMR. NuScale is majority owned by Fluor, NYSE FLR. And GSE has been intimately working with NuScale for the past decade. We are excited about NuScale becoming a public company and recommend GSE investors to review their website and their investor materials to learn more about the SMR market.
In Romania, the country’s Prime Minister recently announced its support for the acceleration of certain projects to implement SMRs as part of creating Romania’s energy independence. This is in accordance with the EU’s vision of reducing carbon dioxide emissions. In the U.K., a push for SMRs has gone into overdrive as Rolls-Royce recently gained the support of the British government to build a fleet of miniature reactors. Prime Minister Boris Johnson has recently announced — on nuclear for the U.K.
Moving to the United States; the Biden administration has laid the initial groundwork with the bipartisan bill that was signed into law in November. The law included several billion dollars specifically allocated to the nuclear industry with a focus on investing for maintenance efforts at existing nuclear facilities. The law also provided funds to accelerate the advancement of next-generation nuclear reactor technologies, including SMRs. We believe the dollars from this law are starting to make their way into the economy. But we are also appreciative of the U.S. government recognizing that upkeep of the current nuclear fleet is of the utmost importance while bridging efforts to the next generation of nuclear facilities.
Nuclear power currently provides 20% of the nation’s power and over 50% of the nation’s 100% carbon-free electricity. As a result, the Biden administration has identified the current fleet of 93 reactors as a vital resource to achieve net zero emissions economy-wide by 2050.
The U.S. Department of Energy recently released a notice of intent and request for information on the implementation of the bipartisan infrastructure laws, $6 billion of funding for civil nuclear credit program. The nuclear credit program supports the continued operation of U.S. nuclear reactors, the nation’s largest source of clean power. Both NOI and RFI are critical first steps to help avoid premature retirements of nuclear reactors across the country, preserving carbon-free power generation at scale for the future while securing thousands of good-paying clean energy jobs. The nuclear credit program is DOE’s most recently announced program to support the President’s clean energy goals and ensure the communities across the country continue to see the benefits of sustainable energy infrastructure.
Commenting on this nuclear credit program, Secretary of Energy Jennifer Granholm stated U.S. nuclear power plants are essential to achieving President Biden’s climates and DOE is committed to keeping 100% clean electricity flowing and preventing premature closures. The bipartisan infrastructure law makes this all possible by allowing us to leverage our existing clean energy infrastructure, strengthen our energy security and protect U.S. jobs. DOE is facilitating the development of next-generation technologies that can ultimately lower emissions and bolster the clean energy workforce. While the Biden administration tried to pass the bill back better bill which is stalled in Congress, there is very strong possibility that portions of it or a condensed version of the bill gets passed with many of the original spending for nuclear energy remaining in the bill.
Taking a deeper look at the bill and called for additional funds to keep nuclear reactors going, the House passed version of the Build Back Better would provide between $20 billion and $25 billion in subsidies to existing reactors alone. The obvious common factor with the bipartisan law and the Build Back Better Bill is the acknowledgment that in order to cut greenhouse gas emissions, nuclear must be a large component of the energy mix to achieve this goal. This is quite significant. The only way to get there is to keep the existing nuclear fleet operating and continue to invest in itself to extend plant operating lifetimes and produce more power from those assets over time.
To quote David Brown, Constellation Energy’s Senior Vice President of Federal Government Affairs and Public Policy; 50% of clean energy in the country comes out of nuclear units. We can’t afford to lose them if we’re going to come close to meeting the administration goals. Constellation is an important company in the nuclear industry, operating 22 reactors. As all of the above make abundantly clear, there is tremendous and broad positive momentum for the nuclear power industry across the political spectrum and across the globe. Energy security, zero-carbon grid and scalable sustainable growth of zero carbon is now top of mind across the globe. As a provider of specialized services and technology to industry, we believe GSE is well positioned as a result of all these trends.
Now, let’s dive into some of the key events GSE experienced in the fourth quarter which was our strongest quarter for new orders since the onset of the pandemic over two years ago.
Overall, the fourth quarter produced another solid quarter that demonstrated that the business has stabilized with significant year-over-year improvements in orders. More importantly, though, the industry has showed signs of renewed strength, especially in the second half of 2021, where GSE experienced a big increase in new orders.
For the fiscal year, total orders increased 25% to $56.5 million in the fourth quarter alone declined by 128% to nearly $18 million, with strong gains both from the Performance Engineering and especially the Workforce Solutions segment which shows that our customers are feeling more comfortable to having more employees on site to fulfill necessary maintenance and upgrades. I’ll get into further detail in both divisions in a few moments.
Although new water levels are not yet at pre-COVID levels, we are very pleased to be trending in the right direction, especially with the acceleration in the second half of 2021. And the new orders awarded in the fourth quarter created great momentum for us headed into 2022. While we continue to see some lingering impact from the pandemic, for sure, the fourth quarter results clearly demonstrate that our customers are starting to emerge from pandemic and prepared to catch up on any work delayed as a result. The good news is that GSE is in a very strong position to competitively bid for business, especially now that we’ve aligned the business and improved our capital structure which Emmett will discuss later in our presentation.
One thing is for certain, two key catalysts are still at the forefront for the nuclear industry: the need for a stable and secure energy supply and decarbonization of the power sector. Both remain important catalysts for the power industry and are only going to gain momentum as we have recently seen due to higher energy cost and geopolitical issues causing energy security concerns. While energy security is the hot topic of the day, as I mentioned earlier in my comments, the focus on decarbonization is also a very relevant issue. And we’re seeing many more opportunities from companies seeking help in finding interesting pathways to achieve net zero-carbon emissions from operations. A perfect example of this was during the fourth quarter when we announced a new contract with Talen Energy in Pennsylvania to support development of its subsidiary Cumulus status, flagship Susquehanna hyperscale data center campus.
GSE’s DP Engineering Group, a GSE Solutions Company, a long-time Talen Energy Engineer of Choice service provider, is part of a multifaceted, multicompany team supporting the project initiative. Talen Energy is developing a cryptocurrency-mining facility in data center on the campus which is adjacent to the Susquehanna Steam Electric Station, the nuclear power plant in Salem Township and it will be powered by nuclear power plant there. Cumulus is rapidly developing the Susquehanna hyperscale data center campus on undeveloped land next to the nuclear power plant and will leverage the carbon-free power generated there. Needing a robust solution up and running quickly and safely, Cumulus tapped GSE DP engineering already serving the station as an EOC engineering of choice provider to prepare design modifications to address the connection of new transmission lines into existing 230-kilovolt and 500-kilovolt lines currently serving the main switch yards at the facility.
GSE is very proud to help with the design of infrastructure to bring nuclear as the carbon-free energy source to the new data center. It’s exciting to be a part of such an innovative endeavor and we look forward to further opportunities to advance carbon-free power applications such as these. We fully expect to see other nuclear operators pursue similar opportunities and you can be sure GSE will highlight our well-earned expertise as we pursue these business opportunities.
Now, let’s review a bit into each operating segment. For engineering performance, we saw revenue decrease slightly sequentially from the third quarter when compared to a year ago. Orders improved significantly during the fourth quarter, rising 69% to $7.4 million when compared to the same quarter a year ago. This increase was attributable to several new contract wins, including a very sizable contract from a large company in the nuclear industry.
Looking further into the Engineering Performance division, our true consulting and DP units performed well compared to the fourth quarter a year ago as more customers are investing in the essential services that we provide to the industry. Our core GSE performance operations which is comprised of sales and upgrades of simulator solutions for nuclear and natural adjacencies, while slightly less than last year in the third quarter, still delivered solid results. More importantly, though, the division received a steady flow of sizable orders throughout the quarter, resulting in the increase in fourth quarter orders for engineering overall. I’d like to highlight the GSE Asia, while currently only a minor part of the business, is seeing a comeback as we experienced the sequential improvement in orders and a large dump from a year ago. This too is an important metric to note as it shows some of our customers are resuming maintenance activities on nuclear facilities and catching up to be current on project work and potentially could be a nice catalyst for us moving forward.
While the division is still in the midst of recovering from the pandemic, we are seeing customers start to put more work out to bid and inquire specifically of our unique solutions. There has been a large uptick in the opportunities pipeline as a result of this increased activity. Because of this, we have reason to be confident that the industry is emerging from the pandemic-related slowdown in spend and do expect additional business within this division over the longer term. Our pipeline of opportunities overall for the segment has clearly improved. So our focus is working diligently with our customers and potential customers to convert these bids into orders and, subsequently, revenue as experienced in the quarter with the new key orders received.
Moving on to our cloud-based Software-as-a-Service solutions for SaaS solutions. As I’ve mentioned in the past, while this is technically categorized under our Engineering Performance division, it is a very exciting and unique component of our business and one which I believe warrants its own conversation. Revenue from our Software Solutions was $2.4 million for the quarter compared to $0.8 million for the third quarter. Most of this revenue was comprised of SaaS-based subscription revenue which is recurring in nature, while the remainder was for onetime licenses and annual maintenance associated with those licenses.
Software revenue was $4.8 million for the year, up roughly 23% compared to the prior year. This is fantastic, absolutely fantastic. It’s important to note that the mix of the software license revenue shifted meaningfully in that the software revenue now is primarily SaaS-based which increased 80% year-over-year. This is an indicator of long-term growth and success with this business as it is recurring and highly sticky in nature with automatic annual adjustments and account for inflation plus margin to the company. We continue to be excited about these high-value, high-margin software solutions which have demonstrated the potential for continued above-average growth rates while bringing strong predictability to the software license business in the company.
I’m extremely pleased with the progress this division has built for GSE. Currently, it represents almost 9% of our total revenues. And we are focused on growing from there in our overall revenue mix. Aside from the recurring nature of software provides, it’s also a very high gross margin, typically in 80% to 90% for GSE. GSE recognizes this revenue on a ratable basis for SAP software quarterly and over the lifetime of the contract. We made a significant push to convert our perpetual licenses to term licenses with our customer as well as capture new customers, delivering the SaaS solution via the cloud. We’ve been successful in converting several of our clients to the SaaS-based license agreements and are in discussions with several more clients and prospects about onboarding them with these solutions.
We’re delighted with our growth in this area and look forward to continuing the transformation to make this segment a larger part of our business.
Now moving to Workforce Solutions which was definitely the highlight of the fourth quarter as more of our customers are feeling comfortable to having employees back on site. Sales were $7 million in the fourth quarter alone which was a 38% increase when compared to $5.1 million from the fourth quarter a year ago. Orders were also strong, coming in at $10.6 million for the fourth quarter alone which was a 202% increase when compared to $3.5 million from the fourth quarter a year ago. The increases really demonstrate how our customers are now feeling more comfortable with having workers on-prem and committed to making sure their facilities receive the required upgrades and maintenance that they may have delayed. This is great news for our business and bodes well for the industry is moving beyond the pandemic.
Orders were also significantly higher on a sequential basis and we believe that this division has obviously turned the corner for the better. Getting a bit more specific; the division received four key orders from our customers with one being a very sizable order with a major utility company and three medium-sized orders, too which are with major utility companies and the other with the construction services company. The recovery is broad and at scale.
To summarize, I’m very proud of our team and the results produced in the fourth quarter and the fiscal year. We’re able to demonstrate a turnaround in the business and have been tenacious in winning new orders. Our backlog has increased as a result of these efforts. While we have much further to do, we continue to see signs of the industry improving. And we do believe that the company is in a strong position to capture additional orders as the pandemic-related constraints on spending are coming to an end. In the meantime, the company has been aligned to the market opportunities at our diversified business mix that we purposely built over the past few years has proven resilient and successful. We believe it has positioned the company to broadly benefit from the macro turns that are highlighted that bode very well for GSE’s future.
We’re in an essential part of the power industry ecosystem and our clients rely on us to keep their assets up and running while creating a highly efficient and safe environment. The strong reputation we have in the industry and the relationships we made — that we maintain with our customers and the value-added engineering, workforce solutions and software technology we offer to industry should position us well to beat out the competition as more business flows into the vendor ecosystem for nuclear and broader zero-carbon power generation.
As the industry continues to develop a resilient grid that will advance the goal of decarbonization, GSE is at the forefront of providing some solutions and ready to partner with the power industry to achieve these goals. In addition, industry tailwinds are extremely strong for GSE as it is becoming quickly apparent that to attain net zero-carbon emissions and have a stable grid with energy independence, nuclear must be included and, in fact, must become more of a critical part of the world’s power mix. Industry news items I previously shared are just a touch of the surface as the renewed activities in nuclear right now. And they make me feel extremely confident about the future opportunities for GSE due to our unique offerings which are at the forefront of making these nuclear power generation technologies and plants operate and run safely, produce more power and operate efficiently from those assets over time.
I’ll now turn the call over to Emmett Pepe, GSE’s CFO, who will review the fourth quarter financial results. Emmett, please proceed.
Emmett Pepe
Thank you, Kyle. With the numbers highlighted in detail in the press release, let me focus my comments on a few areas and provide added color where I can. Kyle highlighted a few of our key new orders in Q4 which led to our highest quarterly total since Q1 of 2020. Workforce Solutions led the charge with their highest quarterly total since Q1 of 2020.
Revenue during the fourth quarter of 2021 was $13.9 million, an increase of 9.6% compared to $12.7 million in the fourth quarter of 2020. The year-over-year improvement was driven by a 38% increase in the company’s Workforce Solutions segment, demonstrating that our customers are moving back to do more work on site. Revenue for fiscal 2021 in total was $55.2 million, a 4.2% decrease when compared to $57.6 million in fiscal 2020. Due to several significant projects that ended in the prior year and a slower bounce-back from the COVID pandemic that expected, particularly in the first half of ’21.
Engineering Performance revenues were $6.8 million in the fourth quarter of 2021 compared to $7.4 million in the third quarter of 2021 and $7.6 million in the year ago fourth quarter. The sequential and year-over-year change was due to lower orders within the simulator part of our business which can be cyclical in nature. However, we have seen this business segment pick up in the second half of 2021 as orders increased 63% over the first half of 2021. For the year, engineering performance revenue was $28.1 million in 2021 compared with $32.8 million in 2020. The year-over-year decrease is primarily due to significant projects that were completed in the prior fiscal year.
Workforce Solutions revenue increased approximately 38.1% to $7 million in the fourth quarter, up from $5.1 million in the fourth quarter of 2020 and slightly decreased when compared to $7.3 million in the third quarter of 2021. For the fiscal year, Workforce Solutions revenue was $27 million in 2021 compared to $24.8 million in 2020, an increase of 8.9%. The year-over-year increase in revenue was primarily due to a new significant customer obtained in the first quarter of 2021 and due to overall increase in activity due to subsiding of the COVID-19 pandemic.
Gross profit in the fourth quarter of 2021 was $3.1 million or approximately 22% of revenue. This compared to gross profit of $3.8 million or 29.9% of revenue in the fourth quarter of 2020 and $3.2 million or 21.7% of revenue in the third quarter of 2021. Gross margin was down primarily due to project mix as our Workforce Solutions segment contributed a larger portion of revenue and our core GSE performance business being down slightly which is typically our highest-margin business. While the gross profits can fluctuate due to project mix, we do anticipate gross profit improvement over time. Also, I’d like to point out that while Workforce Solutions dominated in the fourth quarter, gross profit for that division was 16.1%, nearly 400 basis points above levels reported in the same quarter last year and we had some lower-margin projects in prior periods and Q4 margins are usually better since taxes paid for employees are more front-end loaded in the year.
Operating expenses which excludes restructuring and impairment charges and amortization expense in the fourth quarter of 2021, were $4.6 million compared to $3.4 million in the third quarter of 2021 and fourth quarter of 2020. The large increase in Q4 2021 is due roughly to $800,000 noncash entry for an allowance for doubtful accounts related to a customer contract with our GSE Beijing entity which we will continue to pursue billing and collections on. For 2021, operating expenses were approximately $15.5 million compared to $16.5 million in 2020. And the decrease was due to ongoing tight expense controls implemented in 2021. We continue to closely monitor our operating expenses and expect them to be in line with the prior guidance of $3.5 million to $4 million per quarter.
Same as many other companies in our industry and across the economy, we are seeing higher expenses for everything from corporate insurance and other inflationary pressures. Despite these pressures, we continue to track to our historical run rate for operating expense.
The net loss in fourth quarter of 2021 was $1.9 million or $0.09 per basic and diluted share compared to a loss of $1.5 million or $0.07 per basic and diluted share in Q4 of 2020. Net income for fiscal 2021 was $10.6 million or $0.51 per basic and diluted share compared to a net loss of $10.5 million in fiscal 2020. The positive income reported in fiscal ’21 was from the recording of the forgiveness of the PPP loan as well as income recorded from our employee retention credits.
Adjusted EBITDA was a loss of $1.1 million in the fourth quarter of 2021, a decrease from $0.1 million recorded in the third quarter of 2021 and $1.1 million recorded in the fourth quarter of 2020. As mentioned earlier, we booked roughly $800,000 in Q4 ’21 for the allowance for doubtful accounts. The company’s backlog improved during the fourth quarter to $41.3 million, up from $37.5 million at the end of the third quarter 2021. The sequential increase in the backlog was primarily from our Workforce Solutions division which was $9.5 million at the end of the fourth quarter, up from $6 million at the end of Q3.
Performance Engineering segment backlog was fairly stable at $31.8 million. These levels in the backlog revealed continued post-pandemic activity amongst our clients. This highlights improvement in our existing contracts and combined with the increase in new orders in the quarter put GSE in a solid position heading into 2022. As we have stabilized the business, balance sheet has benefited. We exited the fourth quarter with $3.6 million in cash and $1.8 million that remained on our credit facility which was lower during the quarter by $250,000. That said, as many of you are aware, subsequent to the quarter and year-end, the company entered into an agreement for a convertible debenture which will greatly improve the company’s liquidity.
We are pleased to enter into this finance agreement as we couldn’t borrow on our own line of credit and, as seen in recent quarters, had to repay the line. Given the nature of our business and the timing of contracts, the poor line of credit was not offering the company any real financial flexibility. In addition to eliminating the prior line of credit with restrictive covenants and with the new financing, we were able to file our 10-K without a going concern. This is great news for the company. While I can’t get into specific updated figures, I will express that our cash position is currently much higher and the company is focused on driving new orders and opportunities to improve its financial results. In addition, we have received $1.1 million of the ERC refunds due to us during the first quarter which has also enhanced our capital structure. And we anticipate the additional $3 million in ERC refunds still outstanding.
As the business has been rightsized and our operating expenses have been tightly managed, we believe we have positioned ourselves for stability, renewed growth in the coming periods.
I’ll now turn the conversation back to Kyle.
Kyle Loudermilk
All right. Thanks so much, Emmett. To summarize, we believe the effects of the pandemic on our industry are largely behind us. And as seen in the improvements in new orders, both for the fiscal year and more recently in the back half of 2021, especially the $18 million in new orders booked in the fourth quarter. Our team is highly focused on improving order flow and I believe we’re in a solid position to capitalize on helping our customers upgrade, maintain their existing fleet of facilities. This really bodes well for GSE in the near to mid — and midterm. Looking at the longer term, we see an interesting dynamic unfold on a global basis on two major fronts we believe will act as strong tailwinds for services GSE provides. One is the focus on decarbonization. But the other is the recent rise in energy prices caused by geopolitical issues combined with a shortage in new power production.
The recent rise in energy prices have caused and will cause major inflationary issues that only add more pressure to global leaders to reexamine energy strategies and address them for the long term. If I may, it really is a perfect storm. Everyone needs more energy and many want it to be clean and zero-carbon. Put the two together and the only answer is to embrace nuclear energy.
So as I’ve discussed earlier, we’re storing energy prices and desire for countries and companies to seek consistent means of energy sources. They put a large focus on nuclear and this has — and we’ve seen this with the continued price increases in uranium. It’s our belief that the damage is already done and the realization and implementation of SMRs are being put to the top of the list and priorities of time line and making them a reality has been moved up a significant amount as a result of what’s going on globally right now.
Before we open the call for questions, I’d like to publicly welcome Thomas Dougherty as our newest Board member for GSE. Tom brings to GSE over 40 years of experience in the nuclear power industry and currently serves as the Nuclear Safety Review Board chairperson at several Exelon sites as well as subcommittee chair for the NSR Southern Company and Energy Northwest.
We are extremely appreciative of Tom joining the Board and believe his deep expertise will offer the company tremendous insight and counsel to myself and other Board members into the company. Tom, we heartily welcome you on board.
I’d like to conclude that we believe the company has worked hard in the past year to stabilize our operations, strengthen our balance sheet and continue to work on pursuing newer contracts for the industry as it resumes upgrades and maintenance in their facilities and workforce. Bidding in recent months continues to improve. Many of our customers are coming back to the table and the need for upgrades and upkeep services. While the timing on this business is still hard to pinpoint, we believe that we can see the business in front of us and as much — and it is a matter of when, not how or if. Given our efforts in 2021, GSE is well positioned to win our fair share of opportunities and with a leaner cost structure and stronger balance sheet.
Given our very unique situation as a heavily tech-enabled provider of essential services to the decarbonization of the power sector and nuclear power industry, we remain very confident in our opportunity to create substantial long-term value.
With that said, operator, please open the floor for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Don Burgess with Burgess Capital [ph].
Unidentified Analyst
Once revenues returned to recover levels, on gross profit margins, do you expect any differences up or down to where they were pre-COVID? Are you — specifically, are you able to pass on cost increases where you have them?
Kyle Loudermilk
Yes. I’ll speak qualitatively to that and perhaps Emmett can chime in quantitatively. If you look at pre-COVID margins, they’re obviously higher than, say, where they are currently and not largely reflected the mix of business. With the snapback in Workforce Solutions business which has come back really strong, it’s really been a highlight in the second half of the year, particularly in Q4. Because it’s a lower margin business than our Performance Solutions business which is still climbing back but not at such a rapid pace, that, of course, drove down our overall gross margins. So if we look out ahead of us, returning to pre-coronavirus environment, that’s where we probably see margins overall climb back to approaching what they were at that time.
Emmett, do you have any other comments there?
Emmett Pepe
I think just to add, I mean, I think some of it you touched upon — and a lot of our — we’ve been working very hard to increase rates from an inflationary perspective in our software agreements. We have CPI+ language. So all that together would bolster some margins for us as well.
Unidentified Analyst
And my other question is on the SaaS business is interesting. We know it’s small but it has impressive growth. And can you say anything more about the potential of that business, how much upside do you see for that and what you’re doing to develop it?
Kyle Loudermilk
Yes. I mean, look — it’s a great question, Don. When you look at when we came in, our company had a business practice of giving away it’s technology in order to win service work. And that was obviously upside down. And with our backgrounds, we work to change that, professionally package and license solutions. And we’ve gone from de minimis to two years of really meaningful growth year-over-year. 2020 was a big growth year above 2019. And, again, 2021, the great growth year and the composition of that growth was even higher quality than 2020. So the potential is — we don’t talk futures but you can you look at the past two years’ performance and we’re focused on continuing that. We’re introducing new products. We’ve had a great press release around — recently around our thermal performance monitoring solution which is a software technology solution, really leveraging our know-how and how to get these plants to operate leanly, accurately report the amount of power they’re putting on to the grid, recovering the costs for that power. So finding millions of dollars, lose change in accounts, monitoring it real time on an ongoing basis to ensure peak operations and the like. So — that was new product, net new came out over the last year and it’s doing great. I really feel we’re at an inflection point. So we’re really excited about the growth of this business and really what it means for the company as we move forward.
Operator
[Operator Instructions]
Adam Lowensteiner
Okay. Gary, this is Adam Lowensteiner. I’ll jump in with a couple of questions for the management team. Kyle and Emmett, regarding the bipartisan infrastructure and jobs bill that passed in November, are you starting to see some effects from that? The money is obviously there. How long does it take to make its way into the economy?
Kyle Loudermilk
Now industry is certainly very excited about the fact that there’s national recognition from U.S. at the level to the top of the U.S. government for investing in their current infrastructure to make it more robust, produce more power and extend the lifetime of these plants. So with the formation of the groups that they’re seeking information around how best to disperse these $9 million of funds, I don’t think they gave a time line. But I would expect over the next year, we’re going to see the money start to flow. And the industry is really super excited about it because it finally is starting to level the playing field around subsidies that went in salaries to get that really turned the market upside down and was hurting the very goals of decarbonization as a result.
So now that there’s this broader enlightenment around the approach of zero-carbon with actual funding and intellectual thought and business thought put into it, industries really feel things to turn a corner.
Adam Lowensteiner
Maybe this one is a little bit more for Emmett. I know an investor asked me, you couldn’t be on the call today but said can you describe how important the financing conducted in February is to the company?
Emmett Pepe
Yes. Look, as I stated earlier, it’s tremendous. We — the line of credit we had was restricted. We had no capacity. We had restrictive covenants that really hampered us and contributed heavily to having a going concern from an accounting perspective. So being able to remove that opens up a lot of flexibility for the company. And then having some rightsized and corrected balance sheet, it positions us very well for what we’re open as a good solid year. And that balance sheet flexibility is important.
Adam Lowensteiner
And one more I’ll pose to you both. SMRs are on their way up. NuScale is going public, Maybe discuss a little bit about your work on SMRs and how it’s upfront and what kind of revenue opportunity per construction that could be for GSE?
Kyle Loudermilk
Yes. Well, look, we’ve been partnered with NuScale for over a decade, providing the technology that they’ve used to simulate their design basis and get that initial licensing from the NRC in record time. They have an amazingly capable staff and many GSEs that work there as well as at the SPAC, there’s a GSE alum folks that we know have known for a long time that are driving this effort. So it’s a very small world. It’s a very tight relationship with NuScale. And we’ve been generating revenue over the past decade. And if they get their first plant up and running by the end of this decade, it really gives you a sense of the lead time, where we — our technology can be used very early upfront to generate revenue. We see that with the AP1000s, with Westinghouse as well.
And the closer they get to construction, the closer on any of these plants, the more relevant are engineering services. And our Workforce Solutions groups become as they look to debottleneck their own ability to conduct work, workforce solutions can be brought to bear to look at pre-inspection — or preservice thermal performance and studies, well, that’s where our engineering services can come in a bear. So as they build these plants, they’re built to be optimally performing. And then as you get close to actual operations, pre-service inspection and testing, things that we really specialize on.
So, I won’t put — what does it mean for construction project dollars? It can mean a lot. And the important thing is that our company is entirely relevant to the whole life cycle of these plants. And once the plant up and running, the entire company’s portfolio is highly relevant. But it’s — as we’ve said, it’s been relevant for a decade in amounts of where we are right now with NuScale. So we just have a really neat portfolio of capabilities that we purpose built over the last five, six years as we look to bolt-on really specialty engineering services and workforce solutions.
Adam Lowensteiner
Great. Thanks, Kyle. I think that’s all the questions we have and you can proceed to conclude.
Kyle Loudermilk
Yes. Well, thanks very much. Well, look, I’d like to thank everyone for joining us. Long call today but I thought it was important to give the context of where we are in the nuclear power industry and all the very exciting things that are occurring and you see that flowing through to our results. So we’re really excited by that. We appreciate your time and interest in GSE. And we’re very excited about what lays ahead of us. I will note that next week, we are presenting at the Lytham Partners Spring 2022 Investor Conference next week, April 5 to April 7. And hopefully, a number of you will join and we can get into further discussions there. If you have any questions, don’t hesitate to reach out to Adam from Lytham Partners. And we’d be happy to schedule a follow-up call or just call me directly.
Thanks again, everyone and have a great day.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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