The full text of the September 12th letter is as follows:

 

GSE Systems, Inc

The Board of Directors

Ms. Kathryn O'Connor Gardner, Chairman

Mr. William Corey, Director

Mr. Thomas J. Dougherty, Director

Mr. Suresh Sundaram, Director

6940 Columbia Gateway Dr., Suite 470

Columbia, MD 21046
 

Dear Members of the Board of Directors,

I am a concerned shareholder of GSE Systems, Inc (“GVP” or the “Company”) and extremely disappointed with GSE Systems persistently weak operating results and its many years of declining shareholder value. I currently own shares of common stock of GSE Systems and have maintained this position hoping that one day change will happen. I believe that poor leadership, enabled by a consistent lack of Board oversight, has created a culture where routine underperformance is acceptable. Simply put, the Board and Management has failed shareholders.

 

I have received an outpouring of feedback from fellow shareholders. Based on the feedback, long term GVP Shareholders (real owners of Company) are profoundly disappointed with management's inability to effectively manage the business and with this Board's abject failure to safeguard shareholder value over the past many years – a period during which GVP’s competitors have materially improved their operating results. I believe that management's weak operating results, lack of profitability, its deteriorating credibility with Wall Street, poor allocation of cash and the Board's inability, or unwillingness, to take corrective action have all contributed to this dismal performance.

 

Reasons to Challenge the Status Quo

 

• Poor financial performance

• Poor relative valuation & stock price erosion

• History of misguided and poorly executed acquisitions

• Extremely shareholder-unfriendly corporate governance

• Management and Board with No Real Operational and Industry Experience

• Inability to capture extraordinary value through relationships with Tier1 Providers

• Destruction of Core nuclear simulator business under current management

• Lack of transparency by management to hide poor performance

• Disconnect in pay‐for‐performance

 

Subpar Operational Performance

 

GSE Systems Revenue and Gross Margin has declined each year over the last 4 years. TTM revenue is same as the revenue that business generated in 2015 prior to the appointment of current management and acquisition spree.

	2017	2018	2019	2020	2021
Total Revenue ($ millions)	70.9	92.2	83	57.6	55.2
Revenue Growth		30%	10%	30%	4%
Gross Profit ($ millions)	18.5	23.1	20.2	14.7	11.8
Gross Margin	26.20%	24.70%	24.50%	25.70%	21.50%

 

The subpar performance has continued into 2022 despite the resurgence in activity and RFP’s in Nuclear industry.

 

Failed Acquisitions

 

We believe senior management and Board has exhibited a callous disregard for shareholder capital. GSE Systems, Inc under current management spent $32 million of shareholder Cash for 3 acquisitions that failed to generate projected results or profitability as per the public claims made by management.

 

• Acquired Absolute Consulting for $8.75 million in cash in September 2017. Pro-forma revenue of Absolute consulting was $40 million.

• Acquired True North Consulting for $9.75 million in cash in May 2018. Pro-forma annual revenue of True North Consulting was $11 million.

• Acquired DP Engineering for $13.5 million in cash in February 2019. Pro-forma annual revenue of DP Engineering was $20 million.

 

Combined Pro-Forma revenue of the three acquisitions was $71 million.  We understand that past performance is not indictive of future results, but the results have been deplorable. Board of Directors to whom management is supposed to report has done a poor job allocating owners' capital.

 

Extremely Shareholder-Unfriendly Corporate Governance

 

On June 14, 2022, GSE Systems Inc held its annual meeting and the Chairman of the Board, Kathryn O’Connor Gardner received only 42.7%. In simple terms, Shareholders of GSE Systems (the real owners of the Business) voted for Change. But the Board of GSE Systems went against the resolve of Shareholders to not accept the Chairman’s resignation. By doing so, the Board has self-servingly determined to allow all of its directors to serve on the Board indefinitely, going against the fundamental precepts of good corporate governance practices.

 

Kyle Loudermilk  (CEO of GSE Systems Inc) received 5,077,499 Against Votes which is 20 times the against votes he received in 2019 election.

 

Lack of Operational and Nuclear Industry Experience among Senior Management and the Board

Board with No Skin in the Game. “Skin in Game” is what you Buy, not what you are Given.

It is easier to take risks with other’s  money.

 

We think that Subpar financial performance, lack of revenue growth and failed acquisitions raise legitimate questions regarding the competence of the Board and Management, and we believe a lack of relevant operating and industry experience among senior management and members may have contributed to this poor track record.

GSE Systems Inc weak CEO Kyle Loudermilk is unable to retain or attract good people. Under the leadership of Kyle Loudermilk, GSE’s core business of Nuclear Simulation has dwindled. GSE Systems was a major player in nuclear simulation business with over 1100 installations that generated 20m to 25m in revenue for the company until 2015 without any full scope simulator wins.

No “skin in the game” . Based on the insider filings, the Chairman of the Board Ms. Kathryn O'Connor Gardner has never purchased a single share with her own Funds since her appointment. The trend is same for other Board members and members of senior management. Officers and Board have purchased little to none shares in the last 2 years when stock price has been at the lowest. It’s as if they have no confidence in the business. It is unacceptable for the Board members to continue receiving their annual compensation and not put the money where their mouths are. 

The GSE Systems 2023 Plan

The GSE 2023 Plan is comprised of seven key components that we believe will drive GSE Systems to conservative estimates for sales and a corresponding share price to $80 million and $4 per share, respectively in 2023 based on a 1x sales multiple.

1. Revive nuclear simulator business. U.S. nuclear plants and their original simulators are more than 30 years old. Most sites even need a second simulator to increase their training throughput and upgrade to new digital equipment. GSE Systems should do a sales push and incentivize customers to reinvigorate this business.

2. Hire Sales leadership with proven experience and relationships in Nuclear Energy and Fossil fuels Industry. If that’s been done as is claimed by CEO on earnings call, then Company should provide details and include the Sales leader on an earnings call to share progress. Many companies do this so this won’t be something out of ordinary.

3. Refresh and establish relationships with domestic and international Large Tier1 Engineering Operators to win projects/RFPs through collaboration.  

4. Restore Corporate governance by reconstituting the Board with exceptionally qualified and independent minded directors that have GVP shareholders best interest in mind and have expertise in areas where company needs assistance such as engineering sales.

5. Explore Strategic Alternatives by divesting non-core assets. GSE’s workforce solutions business is a low margin business with no market differentiation. GSE has been unsuccessful to gain scale in this business and serious consideration should be given to divesting it for unlocking value.

6. Monetize existing technology through licensing deals.

7. Replace CEO and hold management accountable.

 

I call on the Board to act now with a renewed sense of urgency and to update shareholders about what is being done to substantially improve shareholder value. GVP Shareholders deserve better. I look forward to your response.

 

GVP is at a critical juncture. With the energy crisis due to recent war in Ukraine and government push towards clean energy, Nuclear sector has seen a revival. With the positive momentum in place, I believe implementing opportunities to expand sales, revitalizing the Company’s governance and refreshing the Board with independent directors who are committed to serving the best interests of all shareholders with the right skillsets for the job will correct the Company’s course and lead to an extremely bright future for GSE System’s Inc. However, nothing will change unless shareholders unite and let their voices be heard in unison. I urge all shareholders to call on the Board members to immediately take Corrective actions.

 

Sincerely,

Ankur Saggar

Ph: (646)420-4306

Email: saggara@gmail.com