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GSE Systems, Inc (NYSEMKT:GVP)

Q4 2013 Results Earnings Conference Call

March 26, 2014, 04:30 PM ET

Executives

Devin Sullivan – SVP of Equity Group

Jim Eberle – CEO

Jeff Hough – SVP and CFO

Larry Gordon – SVP and General Counsel

Analysts

Dan Herbert - Delta Partners

Operator

Greetings, and welcome to the GSE Systems Reports Fourth Quarter 2013 and Year End Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instruction) As a reminder, this conference is being recorded.

It is now my pleasure to turn the conference over to your host, Devin Sullivan, Senior Vice President of the Equity Group. Thank you. You may begin.

Devin Sullivan

Thank you. Good afternoon everyone. Thank you for joining us today.

Before we begin, I’d like to remind everyone that 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 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 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 factor 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 Jim Eberle, Chief Executive Officer of GSE Systems. Jim, please go ahead.

Jim Eberle

Thanks, Devin, and good afternoon. I’d like to welcome everyone to GSE Systems’ fourth quarter and full year 2013 conference call. Also on today’s call are CFO, Jeff Hough; and Larry Gordon, our Senior Vice President and General Counsel.

Earlier this afternoon, we issued a press release covering our financial results for the fourth quarter and full year of 2013. Hope you have had a chance to review the results, but if you have not, a copy of the release can be found on our website at www.gses.com under the Investor Relations section.

Although we have hoped to return to profitability in Q4, we ended the year with a small quarterly loss of $162,000. On an operating basis, we lost just under $500,000 for the quarter. We’re not happy with the persistence of the losses throughout the year and we remain committed to further improvement in our business in 2014.

As we entered the new year, we’ve reduced our total cost structure as compared to 2013 by approximately $1.2 million, with cuts throughout our organization, including changing accounting firms, the down-sizing of our Swedish operations, reductions in our corporate headcount, and reductions in our utilization of outside consultants.

Although we’re prepared to make additional reductions if necessary, we understand that we cannot cut away the profitability and muster the topline and increase gross margin. Accordingly in 2014, we’ve increased our budget for software development by $500,000 and increased our business development budget by $200,000. The $1.2 million cost reduction is net of these two budget increases.

With respect to new business, we closed $11.3 million of new orders in fourth quarter 2013, of which 43% were nuclear. For all of 2013, we booked $32 million of new business. To improve upon these results, we have recently added several senior business development assets and as I previously mentioned, have increased our business development budget in 2014 to further accelerate the process.

Order flow improved in the second half of 2013, from the first half of the year and we estimate that there remained approximately $21 million of orders that our customers have decided to delays.

I want to stress that we have not lost these orders, in fact, we received $1.5 million of these orders in the first quarter of 2014 and expect the decisions on balance of these potential projects will be made in 2014.

Challenges linger in the Post-Fukushima world with nuclear projects of the size and scale we enjoyed just couple of years ago becoming less and less prevalent. In 2013, 65% of our revenues were generated from nuclear projects compared to 59% in 2012 and [57%] (ph) in 2011.

Germany has vowed to shut down all of its nuclear plants by the next decade, the result in paradox of this shift to renewal energy sources is the burdening of German citizens with electricity bills that are the highest in all of Europe.

In Japan, the Ministry of Economy Trade and Industry or METI presented a new basic energy plan to the Government, which proposes a multi-layered approach to providing energy, cheap among them being nuclear.

In a country which imports roughly 84% of its energy requirements, the need for domestic and sustainable energy source such as nuclear power will be of tremendous importance moving forward.

Accordingly the company has seen significant reductions in orders and revenue from nuclear customers in both Japan and Germany, future additionally strong source of revenue for the company.

In 2013, revenue generated from nuclear simulation customers in Japan decreased by $4.2 million and revenue generated from nuclear simulation customers in Germany decreased by $1.6 million, as compared to 2012.

Our challenge is to position the company to develop business in those countries that are still expanding nuclear energy such as China, South Korea and Russia. In 2013, 24% of the company's revenue was generated by our Slovakian project. Of the $11.6 million of revenue recognized in 2013 on this project, $7.6 million related to the Siemens DCS hardware component. This project will be completed in April 2014.

Our product development efforts are helping to support GSE commitment for addressing these opportunities in their various forms. During 2013, we launched multimedia tutorials and real-time dynamic simulation for delayed coking units. Part of GSE Systems' line of EnVision e-learning and Universal Simulations, coking unit computer-based tutorial provide a safe, interactive method for training unit operators on the entire process.

We continue making investments in our Immersive 3D gaming technology with physics-correct simulation models, the Activ3Di framework that we do greatly simplifies the process of creating custom 3D tutorials for our customers.

Design EP, a severe accident simulation product that supports utilities as they develop the responses to nuclear accidents like Fukushima and simulator integrated management environment or SIME is a configuration management tool that gives utility simulation engineers the ability to make deliberate controlled changes to the simulator without losing past history.

We are also making significant progress on the acquisition front. Over the last four years GSE established itself as a world leader in providing real-time high-fidelity simulation training and engineering solutions to all assets of nuclear, chemical, petrochemical and process industry.

This global platform along with the reputational product and service excellence and strong cash position and no long term debt, has allowed us to pursue opportunities in areas that are both supportive of and complementary to our position as global energy service solutions provider. Although there can be no assurances, we are confident that we will be in a position to announce at least one meaningful transaction in 2014.

I’ll now turn the conversation over to Jeff Hough, who’ll review our results for the fourth quarter.

Jeff Hough

Thanks Jim and thanks to each of you for joining us today. Revenue for the fourth quarter, declined by 3.2% to $12.3 million from $12.7 million in the fourth quarter of 2012. The decline was due primarily to a $1.7 million decrease in fossil simulation revenue in the fourth quarter of 2013.

Partially offsetting this decrease was a $1.1 million increase in revenue from our Slovakia simulator project.

Gross profit in the fourth quarter of 2013 was $3.6 million, down from $4.3 million in the fourth quarter of 2012. As a percentage of revenue, gross profit declined from 33.9% through 29.5%. The reduction in gross profit as a percent of revenue primarily reflects a significant reduction in fourth quarter revenue from our Swedish operations, which have historically generated up to 80% of their revenue from Japanese nuclear utility customers, as well as a decline in their fossil revenue from German customers.

As a result of the decline in opportunities from Japan and Germany, we downsize our Swedish operations in the fourth quarter of 2013.

Operating loss for the fourth quarter of 2013 was $492,000 compared to an operating loss of $137,000 in the fourth quarter of 2012. Gain on derivatives was $486,000 in the fourth quarter 2013 as compared to a loss of $157,000 in the fourth quarter of 2012.

We incurred a provision for income taxes of $169,000 in the fourth quarter of 2013, which reflects the establishment of a full valuation allowance against the differed tax asset of our Swedish operations. This compares to an income tax benefit of $180,000 in the fourth quarter of 2012.

The net loss for the fourth quarter of 2013 was $162,000 or $0.01 per basic and diluted share compared to a net loss of $330,000 or $0.02 per basic and diluted share in the fourth quarter of 2012.

Earnings before interest taxes, depreciation, and amortization, known as EBITDA for the fourth quarter 2013 was $175,000 compared to an EBITDA loss of $317,000 in the fourth quarter of 2012.

Backlog at December 31st, 2013 was $38 million compared to $51.9 million at December 31st, 2012.

GSE’s cash position at December 31st, 2013 was $15.6 million, excluding $1.1 million of restricted cash as compared to cash equivalent of $17.6 million, excluding $2.2 of restricted cash at September 30th, 2013.

At December 31st, 2013, the company had an $8.8 million receivable from the Slovakian utility $7.9 million of which was collected in the first quarter of 2014. Due to collection of this money, from the Slovakian utility, our cash in equivalence totaled $20.8 million or $1.16 per diluted share at February 28, 2014.

At the end of the fourth quarter 2013, we had no long-term debt and we have working capital of $26 million. At December 31st, 2013, GSE had U.S. federal net operating loss carry-forwards of approximately $14.7 million. These NOLs will allow us to shield the profits generated by any domestic acquisitions that we may consummate in 2014.

And now, I’ll turn the conversation back to Jim.

Jim Eberle

Thank, Jeff. 2013 was a difficult year for GSE, although 2014 will likely bring challenges, we still see the potential for organic and acquisition-driven growth in regions around the world. There has been a long road, and we appreciate your patience and continuing interest in GSE. I can assure that our hardworking and dedicated team of professionals remains (ph) focused on creating long-term value for our shareholders.

I’ll now ask the operator to open the floor for questions.

Question-and-Answer session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator instructions)

Thank you. Our first question comes from the line of Alan (indiscernible) with American Capital Partners.

Unidentified Analyst

Yes, gentlemen, good afternoon. I’ve been a shareholder for several years. I understand some of the difficulties we’re dealing with. Are there any alternatives strategies that we might employ? Its looks like we’re kind of waiting for the market to kind of come around.

Jim Eberle

Good afternoon Alan. Thank you for the question. We’re actually engaging in a number of alternative strategies. We -- it would be nice if the market came around, but obviously, we can't just wait and with a company as ours, which is largely being doing the same type of business for years, it is difficult to pivot in a rapid fashion.

However, we’re bringing on, as I mentioned, new people to help develop new solutions, we’re, as I mentioned, also investing in our research and development, and not just in our existing capabilities, but in providing new products and services. We’re also reaching out to other parts of the world that we haven’t, in the past, been proactive in.

And then through the acquisition strategy, we’re looking at bolting-on a very complementary, but different capability. So, the short answer is yes, the long answer is we’re employing a number of different strategies.

I don't suspect that GSE’s future relies in GSE’s past. I believe that the market will come around at some point, but we have been working at changing the company strategically from just being a simulation company -- and primarily, just nuclear simulation company to being a solution provider, training, and engineering company that leverages that solution.

So, it may seem subtle, but it opens up more adjacent services when you view yourself as a training and engineering company as opposed to a simulation company.

Unidentified Analyst

Okay. Okay, so we’re going to hire some new talent to kind of open up some new avenues. Now, -- so we’re going to be spending some of our money. What kind of a payback do we envision for that kind of an effort? I mean are these people going to be employees of the company? Or are they on some type of contingent, A; that they are only compensated if they actually bring something to the table?

Jim Eberle

These are employees, however, with the business development assets we’re bringing in, we’re putting together variable compensation plans so that there is some base salary, but the way that they to line their compensation and their incentives with growth in in a given specific targets.

Unidentified Analyst

Okay. And the acquisitions you’ve alluded to, a lot of times, acquisitions don't work well. So, what is your thinking there? I mean we do an acquisition that doesn’t work and now we got a problem that we didn’t have before and we have less capital.

Jim Eberle

Yeah, it’s a very fair question and a fair point. In statistics will tell you, most of acquisitions don't work. Fortunately or unfortunately, I’ve worked in other companies that some successful -- that some unsuccessful acquisitions and I feel like, by studying the market in general as well as my own personal experience, as well as the team.

And I’ve also been -- not wrong fully, but as we haven’t -- we've been talking about acquisitions long time, we had this cash, but that's one of the reasons is exactly that. The worst thing we could do is a bad acquisition.

So, I’m caught more cautious may be than most when it comes to this, because it’s a -- we're not looking to laugh off the head of the acquisition company, we're looking to bring partners, we're looking for talent to raise the talent level in the company. The (indiscernible) so making sure that there's cultural fit between the organizations. It has been very important.

So, -- and any other things, we -- if you look at our history, we buy the companies well and we don't put all the money upfront. There's some percentage upfront and there's earn-out. So, there's skin in the game or the management talent that comes with it. So, I think we -- the thing we really don't do is we don't fall in love with any deal.

So, if it brings due diligence, right now as I mentioned, we've made significant progress from the last call and that's probably the strongest statement I've ever made publically about an acquisition that we feel -- that we will consummate to deal this year. Of course, that's always subject to due diligence. If something comes up in due diligence that doesn't make to feel the right thing, then we won't do it.

So, we try not to also over-value synergy which we think -- we think that's one of the things that a lot of companies, they make mistake, they count of too much synergies. So, we look for good company, better profitability, that are growing, but we think will grow faster with us than without us.

Unidentified Analyst

Okay. Did we generate any cash this year on an operating--?

Jim Eberle

I would say we -- we probably are about net even. We didn’t burn cash. We didn’t generate cash. However, we also made some significant investments, like in enterprise resource planning system and there were some other infrastructure item. So, even while making those investments, we did not burn cash.

Unidentified Analyst

Okay. What about stock buybacks during the year?

Jim Eberle

Yes. We completed the -- we had a plan in place as you probably recall, it was a $3 million plan, we did that. So, we have spent all of the $3 million buying back our share and at this point, we're not looking at another plan.

We -- because of the investments in people as we mentioned, as well as our technology and acquisitions, we think that -- those are the better paths to building the shareholder value at this point. That is a discussion that we have literally at every Board meeting to review and make a decision relative to that.

Unidentified Analyst

Okay. Don't the Germans have now realized that scrapping their nuclear plants is really stupid, especially in light of being so dependent on natural gas from Russia and they have few alternatives?

Jim Eberle

I would have to differ you to (indiscernible). I -- excuse me, I kid a little, but I do travel to Germany on a routine basis and I will tell you that our customer room is obviously very steep in the nuclear industry. They believe that that is going to, in fact, eliminate their nuclear fleet by 2022 deadline.

Yeah, I don't understand that either, but that's -- do check and see if there's reversal. When it first happened, I throughout it was a political decision, to this point, it was not.

Unidentified Analyst

Okay. Now, Japan seems to be restarting their nuclear fleets, correct?

Jim Eberle

They -- all 48 reactors are still shutdown, however, they are definitely making motions and movements. The recent elections, if you saw the new Mayor of Tokyo and then also some recent publications, there is, in fact, a move towards starting the reactors up, but nothing that I could give you any kind of guidance on.

Unidentified Analyst

Okay. Well, that's it from me. Thank you.

Jim Eberle

Thank you, Alan.

Operator

Thank you. (Operator instructions)

Thank you. Our next question comes from the line of Sam (indiscernible) Asset Management. Please proceed with your question.

Unidentified Analyst

Yeah, good afternoon. I guess the $3 million that you spent on buyback, what was the cost per share for that 3 million?

Jim Eberle

Good afternoon Sam. Yeah, approximately $2, probably average out just under $2 a share.

Unidentified Analyst

Okay. And when was the -- did we buy anything back in the current quarter?

Jim Eberle

When you say current quarter, you mean fourth quarter?

Unidentified Analyst

Yeah, fourth quarter.

Jim Eberle

It was complete in the third quarter.

Unidentified Analyst

Okay. Now, as far as the loss in the Sweden, did you say you closed the Swedish operation?

Jim Eberle

No sir, what we do is we down-sized the Swedish operation. We have customer -- significant customers in Sweden and the area and so there are -- and we have some really world-class talent in that office.

So, what we are doing is sizing the office and the expense to that which is needed to be serviced by our Swedish assets keeping the -- again the high value assets, individual and that's where -- so that's the strategy there.

Unidentified Analyst

Okay. So, what kind of loss did we generate in Sweden in the fourth quarter?

Jim Eberle

Jeff, can you answer that one?

Jeff Hough

Yeah. In the fourth quarter, I believe it was about -- it was over $0.5 million.

Unidentified Analyst

$0.5 million. And for the whole year -- with these write-downs and -- despite the write-downs you took with anything relative to the Swedish operation?

Jeff Hough

Yeah. There were some severance cost, but the people were terminated within the Board.

Unidentified Analyst

Okay. With the backlog of $38 million, is that enough to breakeven or what you need to breakeven based on the way you've down-sized your operation.

Jim Eberle

We believe on a revenue basis -- because not all of that backlog will turn into revenue this year, just shear nature of the contract. But for breakeven, we've made the reductions, we will need to be in around $45 million to $47 million revenue.

Unidentified Analyst

Okay. So, at this point with $38 million backlog, you don't have enough revenue to breakeven I guess unless you get something more significantly plus the $38 million is over a longer permuted time than a year per se.

Jim Eberle

Correct. And you may have heard me talk about -- there's $21 million in orders that we have on the radar that have been delayed. We would have expected decisions already to have been made, but just quite honestly, even the people have been here much longer than I have, have not seen these kinds of delays in the history.

So, there's global economy while it continues to put pressure on our customers' ability to make decision to move forward with these capital jobs, which of course, impacts our ability to book.

Unidentified Analyst

But besides these $21 million, which you sort of -- what is the timeframe you expect and what kind of other orders do you have in the pipeline or bids that you have that's not as clear as these $21 million, what kind of--?

Jim Eberle

Well, I'll tell you that I have seen numbers out of our business development organization going into the year that identified plus some stretch, but not necessarily just pie in the sky things, but real type of identified items in excess of $16 million. Does all that come this year? No, history will tell us no.

But -- and we -- based on the conditions we've been fighting in, we really betted the -- those orders. So, I believe that the total number is probably a good number, it's just the timing whether it comes in the next -- we're already in March, so in March -- whether it's in the nine months, or is it the next 12 or 15 months.

That remains to be seen, which is why we have to be as agile and nimble as we can and continually and which we do, constantly look at where can we reduce cost and as the prior caller discussed, add new products and services to complement the base business.

Unidentified Analyst

Okay. Now, you finished the $3 million buyback. I don't know, I don't recall what the officers, Directors would have bought in the past year, et cetera, and I'm not sure if there are any [10-D5] (ph) plans from officers and Directors to buy stock in the open market.

Could you sort of remind me, is there anything going on or is there any expectation of any these type of plans for the officers and Directors to sort of show their comfort and security on what GSE is doing?

Jim Eberle

Individually, -- a few officers made individual purchases, I being one of them. There are no plans in place. And frankly, what -- as part of our cost cutting measures, I have -- I'm moving forward with actual -- some solid reductions. So, it is a -- it will be a difficult time those to also buy stock while reducing their salary.

Unidentified Analyst

Okay. But some of the officers and Directors, they are not -- they may be better off, they may be capable of doing that and the comfort and security on the valuation has been cheap, assuming they do feel that that would sort of establish some guidance relative to the potential shareholders.

Now, as far as the acquisitions you're looking, could you sort of indicate the size and sales of what type of size that you're looking at sales and earnings, et cetera?

Jim Eberle

I can give you some range. These are the things that I've discussed before in prior calls also in individual conversation. So, our -- the size of the company that's kind of been our -- what I call, our sweet spot is between $10 million and $20 million in revenue. We would look at they would be on a EBIT basis, be making in and around 10% depending on the business, right.

Certain businesses are going to be much higher margin, something that might be high level consulting type of a company. As I've mentioned in prior call, in some places, may be a 5% type of a business, so -- but that's kind of general ranges that I've given.

Unidentified Analyst

And what kind of sales would expect these companies to have?

Jim Eberle

$10 to million to $20 million would be ideal.

Unidentified Analyst

$20 million.

Jim Eberle

Yeah, that's not so, we're not looking at some high margin companies that might only be $5 million or $6 million, but obviously, if they are coming in with 40% margin, that make some interest. As well as we're looking for those key fits, getting us into customer's higher level, maybe another part of the organization that we haven’t been in complimentary services.

Unidentified Analyst

And acquisition you made two, three years ago which -- how did that work out?

Jim Eberle

It was three years ago and it has worked out well. It's been profitable part of our business. They have given us opportunity to get into other -- some blue chip customers. And -- so it's -- we knew this is a small company and customer concentration was one of the risks. They had one very large contract with Shell.

We were able to, in relatively short order with them, win another big job like that with British Petroleum and we chased more of those. We wish of course we could close one in the quarter, but it's -- that is just not the way that works out.

However, we have, in my opinion, proved the thesis that this global implementation of that solution, it works for Shell, it works for BP, it could and should work for other big companies like them. We're also investing in it adding more content for upselling.

Unidentified Analyst

What -- I'm sorry.

Jim Eberle

That's okay.

Unidentified Analyst

Yeah, go ahead.

Jim Eberle

Actually -- so I view the assets we bought it well. It was very complementary. We got good talent and we also picked up an Indian development office. So, we're looking still to leverage that for the rest of our business, but, all in all, I consider that as success.

Unidentified Analyst

All right, hopefully you find another--

Jim Eberle

Yes, sir.

Unidentified Analyst

All right. Thank you. Good luck.

Jim Eberle

Thanks Sam.

Operator

Thank you. Our next question comes from the line Dan Herbert with Delta Partners. Please proceed with your question.

Dan Herbert - Delta Partners

Hey guys. I was wondering if you can give us an update and assessment of the nuclear market in China. And kind of what the competitive is and what your position is? It seems like they probably among any countries are being the most aggressive about adding nuclear facilities, so I was just curious what's going on there.

Jim Eberle

Sure. Yeah, China -- you read that well. China is a bright spot in the nuclear landscape. We're very well-positioned in China. I'm pretty sure you and I talked before Dan, but I don't recall how long you've been following our story, but we had a joint venture in China that we have recently dissolved. So, it actually improves our position in that. We now will enjoy 100% of the revenue, a 100% of profit of that jobs that we do as oppose to 49% one line entry on the income statement.

And then -- and the opportunities continue to grow. We have established strategic partnerships with the various different Chinese entities and -- when we do our report out, it looks bit like off of that soup, but there's a lot -- it's a very well established hierarchy and there are certain places that we're not going to be able to be because there are other -- there are competitors, but its seems though largely the landscape is divided up. So, the competitors get the jobs that come through their partners and we're lined up with a number of different entity.

So, I'm happy and hopeful about our opportunities in China and then I'll answer more than your question, a little bit, while we're Asia. South Korea is another really important region there. They're moving forward with themselves with more nuclear, but the future for both China and South Korea is exports. And we're working hard and have done a good job and I think we're in good position to leverage those export, so to be a part of when they go to export their nuclear power plants to other countries that are developing nuclear energy.

Dan Herbert - Delta Partners

Okay. But just in terms of market share, if you want to divide it up two says, tell me -- maybe take a guess at what percent of the market you have an opportunity to compete in China and then kind of -- what kind of share you think you have and how many competitors you're facing?

Jim Eberle

Well, there are not a lot of competitors. Really the number is less than five at this point. And seriously we compete with two or three. I would say -- and this is going -- out of little bit to give an idea, I would say that the available market to us is more than 50% and less than 75%. And I think we're in very good position in that 50% to 75%.

Dan Herbert - Delta Partners

Well what -- I mean to-date, are you generating revenue today, can you talk about whether -- I mean do you have 10% share, 5%, 20%, what's the market look like? How fast is it growing? Under the may be illusion, but I thought they were adding some 100 nuclear reactors between like 2012 and 2017 or something like that?

Jim Eberle

No, Fukushima slowed a lot of that activity down and it changed the landscape the dramatically. So, where they had planned to build reactors, they changed their mind. They are moving forward. So, it is not near what -- at one time, you're right; there was talk of those kinds of numbers. But it's not near that now. But -- Jeff can you -- we have about $6 million or $7 million--

Jeff Hough

$7 million revenue last year.

Jim Eberle

$7 million of revenue last year in the China market and I would expect that to increase steadily. As China digested the Fukushima issue and they did it faster than most countries. They have also made key decisions about where they weren’t building reactors, but they are going to move forward and I expect it will pick up pace.

Dan Herbert - Delta Partners

I don't know -- obviously on the other end, there's a push from pollution and it's pretty severe and I'm just curious if that market accelerates whether you -- I mean it sounds like obviously you anticipate accelerating along with it, that's a competitive environment, isn’t such that it would make -- that you wouldn’t get at least your fair share.

Jim Eberle

Yeah, I think that's a good read. We're going to get our fair share if it -- as it accelerates, we will. And as you may know, we have our office. We have an office in Beijing and we're ready and prepared to scale, not just to service China, but to lower our average labor cost -- as I mentioned we have been reducing headcount really across the company as it made sense. And the idea is that as business picks up, where we step-up would be in low labor cost countries such as China and perhaps India, we're looking at places like -- seriously looking at places like Vietnam as well. So,--

Dan Herbert - Delta Partners

And are margins in china equivalent to corporate margins?

Jim Eberle

They are a little slimmer in China than they are in other places in the world. But as I mentioned, one of the ways that we attack that is we go -- we use as much Chinese labor as possible. We have excellent Chinese engineers in Beijing office.

Dan Herbert - Delta Partners

Okay. Thanks.

Jim Eberle

Yeah. You're very welcome.

Operator

Thank you. We have no further questions at this time. I'll like to return the call back over to Mr. Eberle for closing comments.

Jim Eberle

I would like to thank everyone again for your time and continued interest in GSE Systems.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at time. And thank you for your participation.

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