GSE Systems Unloads Software Division

GSE Systems Unloads Software Division

By Bob Starzynski
Staff Writer

Chris Carnavos, who took the reins at GSE Systems Inc. in January, made his first major move toward turning the company around May 4 by selling a business software division to systems integrator Keane Inc..

The Columbia, Md.-based company's Erudite division, which develops client/server and business software, accounted for $18 million of GSE's sales last year. But it was a digression for the company.

As the company strayed from its core competency of controls and simulation, revenue fell 17 percent from 1996 to $79.7 million, going from a profit of $4.1 million to a loss of $8.7 million in the same period.

GSE, which offers software solutions ranging from process control applications for food and beverage companies to simulation systems for nuclear power plants, suffered a financial hiccup in 1997.

Last year "was a tough year for GSE Systems as an aggressive growth strategy into non-core businesses was largely unsuccessful," Carnavos said in a recent financial report.

Major customers for GSE include food processors Archer Daniels Midland and Cargill, pharmaceuticals maker Merck and foreign power plant operators in such countries as the Czech Republic and Ukraine. The company also has alliances with multinational corporations, like Siemens and Samsung, for the development of systems in other countries.

When Carnavos, who honed his management skills at Johnson Yokogawa Corp. of Newman, Ga., Bailey Controls Co. of Wickliffe, Ohio, and Digital Equipment Corp. of Maynard, Mass., was elevated to president, his challenge was obvious - cut out the non-core businesses, stabilize the financials and grow the core.

The first step in that plan was the sale of Salt Lake City-based GSE Erudite Software to Keane for about $9 million in cash. In addition, GSE stands to gain another $1 million from Keane on the first anniversary of the closing, subject to the offset of any claims for indemnification.

"We believe that this ... is a significant step in our ... initiative to refocus our company back to building a stronger core business of controls and simulation," Carnavos said in a recent announcement. "Erudite is a much better fit with Keane."

But GSE's return to good health is not yet over.

For a year after the company went public in the summer of 1995 on Nasdaq's National Market, its stock price hovered in the $12 to $18 range. Then within a year and a half, the stock lost almost 90 percent of its value, dropping to as low as $1.50 early this year.

Having only served two years of a three-year employment contract, William Kuhlmann resigned as chairman and chief executive of GSE in April 1997.

Rolf Falkenberg, who held the top executive spot after Kuhlmann's resignation, was demoted in January to make way for Carnavos.

Carnavos originally joined GSE as a senior vice president one year before his most recent promotion.

According to documents filed in April with the Securities and Exchange Commission, Falkenberg will continue to work for the company in a "reduced capacity" until his employment contract expires in July.

GSE Systems Inc.
Headquarters: Columbia, Md.
Market: Nasdaq National Market
Symbol: GSES
1997 Revenue: $79.7 million
1996 Revenue: $96 million
1997 Net Loss: $8.7 million
1996 Net Income: $4.1 million
Meanwhile, expenses have mounted. Last year, GSE chewed up $12.2 million of the $13.9 million it had saved for working capital.

"The problem was they got into new businesses they didn't understand," said Bonnie Wachtel, president of Washington stock brokerage Wachtel & Co. "But they are a real business that has been profitable in the past. If [Carnavos] can keep expenses in line and shop for new partners, this could be a good turnaround story."

Wachtel, who frequently invests in undervalued companies and turnaround candidates, has been watching GSE for the past year. Since Carnavos took the helm, the stock has doubled from its all-time low to close at $3.44 May 4.

The power plant simulation business, which accounted for part of the decrease in revenue last year, has started off the year on the right foot, with $16 million worth of new contracts already added to the mix.

Carnavos also said last month that GSE would reduce its operations in the Asia Pacific, where the company's bottom line was hurt last year with market problems in Asian countries.

Carnavos could not be reached for comment on restructuring efforts.

Reader Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above.

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here

Washington Technology Daily

Sign up for our newsletter.

Terms and Privacy Policy consent

I agree to this site's Privacy Policy.


contracts DB