GSE Systems, Inc.: Operating near full power

To say energy production is a complicated business is to say Catherine Zeta-Jones has pleasant features: it's an exercise in the obvious and the understated. But as obvious and as understated as it may be, it's still worth noting; complicated businesses demand sophisticated technology to coordinate and manage their many moving parts.

In electrical-energy production, Baltimore-based GSE Systems, Inc. (AMEX: GVP) provides an indispensable chunk of that sophisticated technology. Specifically, GSE provides simulation and educational solutions and services to the nuclear and fossil electric utility industry. The company boasts three decades of experience, totaling 343 installations and 100 customers in more than 40 countries.

Despite all the Hosannas directed at wind, recycled cooking oil and corn squeezins', GSE's clientèle of conventional electrical energy providers still rule the roost, and will continue to do so into the relevant future. Energy pundits expect a protracted cycle of nuclear and fossil fuel generation expansion and upgrade, and so does GSE. Management presages a renaissance in nuclear power generation both internationally and domestically that will provide significant opportunities.

On the international front, China has announced plans to build 40 new nuclear plants by 2020. Russia has also announced plans for 40 new plants by 2030. New plants are on the drawing board or under construction in Finland, Slovakia and Bulgaria. On the domestic front, numerous utilities are preparing applications for construction and operating licenses under the Department of Energy 2010 incentive program, a joint government-industry effort to identify sites for new nuclear power plants, develop advanced nuclear plant technologies and demonstrate new regulatory processes that should lead to new power-plant construction.

These macro industry events are starting to materialize into micro financial results. GSE recently reported third-quarter revenue of $7.5 million, a modest 3% increase over the $7.3 million posted in the third quarter of 2006. Net income attributed to common shareholders was $303,000, or $0.02 per share, compared to $337,000, or $0.04 per share, in 2006. Despite the drop in the year-over-year comparison, the EPS beat First Call estimates for $0.01 per share.

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