Greetings, and welcome to the Perma-Fix Environmental year-end 2016 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natalya Rudman with Crescendo Communications. Thank you, Ms. Rudman. You may begin.
Thank you, Bob. Good morning, everyone, and welcome to Perma-Fix Environmental Services' fourth quarter and year-end 2016 conference call. On the call with us this morning are Dr. Lou Centofanti, CEO; Ben Naccarato, CFO; and Mark Duff, COO and Executive Vice President. The company issued a press release this morning containing fourth quarter, year-end 2016 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
All statements on this conference call, other than a statement of historical fact, are forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events, or circumstances after the date hereof that bear upon forward-looking statements. I'd now like to turn the call over to Dr. Lou Centofanti. Please go ahead, Lou.
Thank you, Natalya, and welcome everyone. I'd like to first hit on some high points, and then we'll get into some detail. First, one of the most macro events going on is the very dramatic shift we're seeing at Department of Energy. Many of you probably have seen the proposed budget they put out, which is a significant increase and probably one of the highest numbers we've seen for the environmental program. Also, both Secretary Perry and his team, we're hearing much more a focus on how the commercial operations can help accelerate the whole program. We're real excited there with the macro events that are going on at DOE. Touch on the solid results in the fourth quarter and somewhat look ahead to the good results we're already seeing in the first quarter. Mark Duff will be touching on the pipeline that we're seeing for services.
It's as rich as we've seen, and in fact, a rather minor contract we just won in Canada, but it's significant because it's our first prime contract. We've had several contracts working with primes, but this is the first one where we primed. The other point in the quarter has been we're freeing up about $3.4 million out of our bonding fund, which will come back into the company as cash and will strengthen our balance sheet. It's been a very busy six months. Let's get into the details. Like I said earlier, very pleased to report solid fourth-quarter results. We believe we are back on track with positive and improving cash flow. We came in ahead of guidance with $1.9 million of adjusted EBITDA versus a forecast of about $1 million.
These results are a significant departure from what we saw in the first nine months of 2016. As we had previously disclosed, we saw a large number of shipments throughout 2016 that were delayed and unanticipated spending constraints at the federal level leading up to the election. This was not unique to us, as it affected our peers as well. Even though the budgets weren't reduced, work programs were put on hold until after the election. As we expected, waste shipments immediately picked up back after the election, and we resumed bidding on a wide range of service contracts. Like I say, Mark will provide some additional color on our service pipeline later in the call. Looking ahead, we expect 2017 to be a strong year for our treatment segment despite some weather-related delays in the Northwest.
The Hanford site was actually shut down for over 20 days because of weather. The first quarter of 2017 will still be significantly improved from the first quarter of last year with positive EBITDA. We expect this trend to continue throughout the year, especially on the treatment side, where we're pursuing a variety of major initiatives and look forward to discussing them further as they materialize. Back to the Department of Energy. Even though the budgets have not been finalized, we're very encouraged by the White House's proposed budget for the DOE's Office of Environmental Management, which oversees the remediation of nuclear waste at the various DOE sites around the country.
The current budget proposed by the White House is for $6.5 billion, a very significant increase over the $5.9 billion budget last year, and if approved, would, I believe, be one of the highest numbers we've seen on the cleanup program. With the new secretary and early comments out of the transition team, we have seen not only a focus on accelerating the cleanup, but also involving the commercial sector to find solutions to the environmental program and help accelerate that program. We believe these two combinations give us a major focus on accelerating the cleanup and could obviously be a huge win for us. Turning to our P&L, we continue to carefully manage expenses and identify new areas for cost savings.
As we had discussed in the past, we're on track to complete the closure of our M&EC facility by January of 2018, after which we believe we will see an estimated savings of somewhere between $4 million-$5 million a year in fixed costs annually. As I said in the summary, we're also pleased to report we're close to replacing our bonding, which secures our closure requirements at our Northwest facility. In doing that, we should free up approximately $3.4 million of restricted cash from our finite risks fund. Our plans are to use these funds to pay down our revolver line of credit in the second quarter. We've always said the restricted cash on our balance sheet, which secures our closure requirements, is an underappreciated asset.
At the end of the second quarter 2017, we expect our balance sheet to still reflect approximately $18 million of restricted cash. Ben will provide more detail on this later in the call. Suffice to say that between the growth in revenue, improved liquidity, and the strength of our balance sheet, we believe the company is positioned for a significant turnaround this year. We continue to believe the company is dramatically undervalued, both to tangible and intangible assets such as our permits, which would be nearly impossible to duplicate. Lastly, I know it's taken longer than expected, but we continue to work towards finalizing an agreement with a private investor to fund our medical subsidiary and hope to have an update in the near future. With that, let me now turn the call over to Mark Duff, who recently joined us as Executive Vice President.
Since joining the company, Mark has done a terrific job building the sales pipeline, especially within the service segment, and integrating the services and treatment part of our business. Mark?
Great. Thanks, Lou. In the short time since I joined the company, we've accomplished a number of very important strategic initiatives that I believe will position us for growth in the months and years ahead. First, we completed implementation of our new business development program to broaden our reach into new markets and new clients for the nuclear services opportunities out there. We've seen a significant increase in procurements, which fit clearly into our core competencies, which have resulted in increased number of proposals that have been developed, and a potential for subsequent awards to be realized in the second and third quarters of this year. Within the treatment segment, we've developed a new strategic plan focused on expansion of our treatment capabilities to better align with the market as well.
We've begun to implement the plan to address several new waste streams, specifically in the fourth quarter of 2017, that can increase our stability and waste receipts while increasing our overall market potential for waste treatment. We're pleased to report that the overall waste receipts increased through the fourth quarter of last year, providing an improved backlog heading into January, February of this year. This provides us greater visibility and confidence in our ability to meet our production goals for the first quarter as well as subsequent quarters throughout the year. Finally, we're optimistic about 2017, specifically regarding our ability to see significant year-over-year increases in both revenue and profits as we realize the results of our new strategies and expansions of our markets in both the waste treatment side as well as the nuclear services side. That's all I have today. I'll now turn it over to Ben.
Okay. Thank you, Mark. Beginning with revenue, our total revenue from continuing operations for the fourth quarter was $13.4 million compared to last year's fourth quarter of $15.1 million, a decrease of $1.7 million or 11.3%. The treatment segment was relatively consistent to prior year, with revenue only modestly down by $193,000 or 2%. Our services segment revenue was down by $1.5 million or 26.8%. While our treatment shipments did show improvement from the earlier part of the year, the drop in services revenue was a result of the completion of a significant contract that concluded in the fourth quarter. For the year ended 2016, our revenue was $51.2 million, well below $62.4 million in 2015. We experienced delays in the first three quarters of 2016, primarily related to the shipments from our government customers in the treatment segment. That accounted for approximately 81% of our shortfall.
On the cost of goods sold, our total cost of sales was $10 million in the fourth quarter compared to $11.2 million in the prior year, a reduction of $1.2 million or 10.7%. Our treatment segment cost of sales decreased $283,000, primarily from the lower variable costs related to lower revenue. Offset by an increase in our fixed facility costs, which were brought about by our decision to close our M&EC location as we accelerated certain depreciation on certain assets. Our cost of sales from the service segment were down $916,000 with variable expenses related to lower revenue accounting for $886,000, and the remainder of about $30,000 from lower fixed expenses. Our gross profit was $3.4 million compared to $3.9 million in 2015. The shortfall of $468,000 was primarily volume related. It was offset by an improved revenue mix.
For the year ended 2016, gross profit was $7.1 million compared to $14.4 million in 2015. Again, the lower revenue resulting from the shipment delays in the treatment segment was the primary reason for the gross profit shortfall. Our total SG&A costs for the quarter were $2.6 million compared to $2.3 million last year, an increase of approximately $228,000. Higher legal expenses, and a large bad debt recovery in 2015 were the main reasons for this variance. Our income from continuing operations for the quarter before taxes was $317,000 compared to income of $677,000 last year. Our net income attributable to common shareholders for the quarter was $226,000 compared to last year's net income of $97,000. Our year-to-date losses from both continuing operations and attributable to common shareholders included impairment charges, write-offs, and a tax benefit related to the closure of our M&EC location, which totaled approximately $7.5 million.
Our total income per share for the quarter was $0.02 per share compared to income per share of $0.01 in prior year. Our adjusted EBITDA from continuing operations for the quarter, as defined in this morning's press release, was $1.9 million compared to $2.5 million last year. Looking at some balance sheet items compared to 2015 year-end, our cash was down $1.4 million, which was representative of the spending in our Perma-Fix Medical subsidiary, which we consolidate. Our accounts receivable and unbilled receivable collectively were down approximately $2.6 million due to improved collections and lower revenue in 2016. Our other current assets were down $1.6 million due to a write-off of about $587,000 at M&EC and the reduction of various other prepaids and receivables. Our intangibles and other assets were down $9 million, which was the result of a write-off of the permit at M&EC.
Our waste backlog finished at $5.2 million, which was up from $4.7 million in 2015. Our long-term liabilities were down $2.9 million as a result of reclassifying the majority of our closure liability at M&EC from long-term to current. Our current debt was $1.2 million, which was down $1.3 million from 2015, reflecting the payoff of the shareholder loan in August of 2016. Our total debt, excluding debt issuance costs at quarter end was $9 million, and this is all due to our lender, PNC Bank. I'll next summarize our cash flow. Our cash provided by continuing operations was $1.1 million. I do want to note that because of consolidation of our medical, that does include $1.4 million of spending by our medical group. Our core operations actually generated more than that. Cash used by discontinued ops was $959,000.
Our cash used for investing in continuing operations was $499,000, of which $436,000 was for cap spending. Our cash provided by investing activities of discontinued operations was $84,000, and cash used for financing was $956,000. Finally, I'm going to address our working capital. Our working capital at year-end was at a deficit of $2.1 million. Again, this was the result of reclassifying most of our closure liability of $2.2 million at M&EC as current due to the projected closure date of January 2018. As Lou mentioned earlier, we've also initiated a change in our bonding mechanism at Perma-Fix Northwest facility, which will enable us to free up approximately $3.5 million from our finite risk sinking fund. As we await sign-off from one of the regulators, we continue to classify these funds as long-term. With that, operator, I'll now open the call to questions.
Thank you. Ladies and gentlemen, we'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we call for questions. Again, ladies and gentlemen, that's star one if you'd like to ask a question. Our first question comes from the line of Robert Manning. Please proceed with your question.
Mark, you'd indicated you might be able to give a little bit more color on the pipeline. If you can give any more color, I'd be interested.
Sure, Robert. It's difficult to go into too much detail because of competitor issues. Basically, we have a number of bids we're putting together, large bids for the Corps of Engineers. We're waiting for some awards from other Department of Energy relative to our core competencies, which primarily is waste management and radiological services. As Lou mentioned, we were successful on our project in Canada. We have not officially signed the contract. We've been notified of award, but we're in the final negotiations contract in Canada. That's for a remediation job in Toronto. Right now, Robert, we have in our backlog, our hot list, about 15 bids that we're waiting to hear on specifically. Those cover a pretty wide gamut of types of services, primarily government sector type of work.
This time last year, I would say, I wasn't here this time last year, our backlog of proposals that were outstanding were probably only a few in total. I'm very encouraged by the fact that we've got 15 or so that we're waiting to hear on any day moving forward. We're developing five or six procurements a week. We're certainly increasing our opportunities on the services side.
You're getting that many bids in?
We're spending a lot of time getting our proposal services, the proposal center up and running. I think that's one area that we just weren't as strong a year ago was having an organized and methodical approach to identifying procurements before they come out so we can position for them. Also getting on Teams. We didn't focus a lot on that. Those are the two things that we've done and focused very specifically on proposals and opportunities that specifically align with waste management and RAD services, which are our two core competencies, two primary competencies.
Bids this year compares to, you didn't have an exact number, did you say a couple? Just like two or three? I'm not sure I understood that.
Yeah. A year ago, again, I wasn't here a year ago, Robert, I don't have any data in front of me. Typically, we carry two or three opportunities on our bid list at a time last year. I don't know if Lou can add any additional details to that, we've certainly increased that by at least a dozen over last year's typical trailing proposal submissions.
Okay.
Bob, the number he gave was pretty close, I think it's important too, to realize those bids, there is competition because most of them are service work and like our waste treatment side. You may get a win rate of 30% on them because of the various competition of people might be bidding at any one time.
That's a good point, Bob. Lou has that done right. 30%-40% is a good target.
I know you can't quantify this too much, but anything you can give us on the size of these bids?
They range. We typically don't track anything under about $500K and specific on this list. Most of them are above that. I'd say between $500K and the $10 million range overall, but they vary widely. Some of these are IDIQ type of bids where the government will put a procurement out, and they'll put a large number on it knowing that there's going to be task orders over a certain number of years. Those are very difficult to estimate because you don't know how much funding is going to go to them from year to year, which projects are going to be awarded. It's difficult to put prices or revenue on these things at this point. We will be putting together a press release in the next few weeks and identifying some of these ones we're in a position to announce them.
On commercial clients, they don't want things to be announced, and some government clients don't either. Some might be generic, but we're going to lump a number of them together and put a press release together after we get a couple more in our signature pile.
You said you expected awards in the fairly near term. It's always been tough to predict how fast the government's going to act on stuff, but you sounded fairly confident that we're going to see a significant number of these awarded in Q2?
That is our anticipation, yeah, that the win is.
You mentioned that the backlog is up significantly. I don't know if you care to quantify that at all, but if you can, I'd be interested. If you can't, you can't.
Yeah, I guess I would say that as far as backlog is concerned, we bill our clients at moment of receipt of waste. Typically, we bill during processing, as it's processed, then we bill during disposal. There's some variances between clients depending on what kind of treatment we're doing. When you see inventory at our treatment facilities of waste to be processed, that means you've got a good backlog that will carry you usually for several months. Right now, we've got a backlog that should keep us close to our plan for revenue generation at each of our facilities for the next several months. That's encouraging. I can't give you exact numbers at this point, but basically enough to say that we're very close to plan for the next several months.
Bob, I can jump in. The treatment backlog is the one that I mentioned, it's 5.7, was it? Yeah, 5.7 compared to about 4.7 last year.
Great, thank you.
5.7, Bob. That's a decent backlog to start from. Receipts come in, which we've seen a good receipt start to the year.
Great. Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you'd like to ask a question, that's star one on your telephone keypad. One moment while we poll for questions. Our next question comes from the line of Tristan Barr with MTB Asset Management. Please proceed with your question.
Hi guys, how are you?
Hey, Tristan.
Was a little surprised we haven't gotten an update or you didn't provide an update on the high-level waste test. Is there anything you can say about that?
No, we're under fairly strict orders there not to discuss the program.
Okay. That was my only question. Thanks, guys.
All right.
Thank you. Our next question comes from the line of Paul Lacote, who is a private investor. Please proceed with your question.
My question was essentially the same as Tristan's.
Yeah. Sorry about that. Yeah.
All right.
Thank you.
Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question, that's star one on your telephone keypad. One moment while we poll for questions. Our next question comes from the line of Bill Chapman, who is a private investor. Please proceed with your question.
Guys, I'm sorry if I missed this, if you covered this in the earlier part of your presentation, what is the cash balance on our sinking fund now after the cash release?
When we release it'll be about $18 million, Bill.
Okay. Now the trade-off is what our-
Say again?
I'm sorry, go ahead.
The restricted balance will be $18 million.
Okay. Now the trade-off is what our insurance premiums have gone up?
We'll have a bonding fee, that's kind of the trade-off, and it's a net number because we were incurring certain bond fee already. It's probably about $100,000 a year increase.
Okay. Well, let me ask, too, when the funding on the Perma-Fix Medical occurs, so our cash outlays will cease. Is that correct?
They have slowed down dramatically over the year as we've moved forward over the year. When we complete the funding, they will cease, yes.
Okay. We will no longer then consolidate the expenses then.
That depends, Bill, on whether or not we're controlling or not. If it goes to plan.
Yeah
we would be a minority and we would no longer consolidate.
Okay. Could you give an update, Louis, briefly on what competition and where they're at, like NorthStar and some of our limited competitors? Could you give an update on that, please?
Well, probably the big update, of course, is that Chalk River did close, it's put further stress on the whole supply chain. You continue to see prices move up. The present suppliers are attempting to move out of using high-level waste for targets and moving into a It's still weapons-grade waste 20%, but it's a much lower concentration of uranium. That dramatically will, again, dramatically increase the price of Tech 99 in the market and also put further strains on the supply chain. As we've seen, the supply chain is continuing to struggle. There is a
Enough in the system. You're seeing material come out of Australia, South Africa, and other places which have made up for the loss of Chalk River. You can imagine moving a very short-lived isotope around the world, it's put a lot of strain on the system and made it much more fragile. As for the competitors, NorthStar continues to progress within the FDA and probably sometime in the near future, they may be approved. We think they are making some progress, but it's been a long, hard road for them. Other than that, there's really not been a lot of change in the market. We still see a very rich market, if we can further develop our technology. We don't think it's hurting us that much by our delays here.
Okay, thanks. Thank you.
Thank you. There are no further questions at this time. I'd like to turn the floor back to management for closing comments.
Thank you. Once again, I'd like to thank everyone for participating in our fourth quarter call. Our results in 2016 were impacted by factors somewhat out of our control, but thanks to the strength of our balance sheet and our ability to manage our expenses, we believe we effectively weathered the storm and now have positive momentum again. This is evident by the $1.9 million of adjusted EBITDA we reported for the fourth quarter. Heading into 2017, we anticipate growth in revenue and improved profitability. First quarter's looking good, considering some of the harsh weather in the Northwest where our lead facility is located. We expect to see positive EBITDA in the first quarter and a big improvement over last year. As I mentioned earlier, we see ahead very significant opportunities in both treatment and service segments.
On the treatment side, we continue to look forward to moving into a variety of new waste streams which we discussed earlier, represent fairly sizable opportunities. On the service side, as Mark discussed, we're bidding on some very large contracts and look forward to providing additional updates in the future. Taking into account the high fixed cost nature of the business and the steps we've taken to drive top line growth while managing expenses, we expect to report dramatically improved profitability in 2017. As I mentioned earlier, we see a much better macro environment, as illustrated by the changes at Department of Energy and the White House's focus on accelerating the cleanup of legacy waste and improved funding for nuclear in general. We appreciate everyone's continued support and look forward to providing additional updates in the near future. Thank you all.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.