Ladies and gentlemen, good day and thank you all for joining this Perma-Fix Environmental Services third quarter 2019 business update conference call. All telephone lines are presently in a listen-only mode. Instructions on how to submit a question will be shared after today's prepared remarks. If during today's conference you require operator assistance, simply press star and zero on your telephone keypad. As a reminder, today's meeting is being recorded. For opening remarks and introductions, I'm pleased to turn the floor over to Mr. David Waldman with Investor Relations. Welcome, David.
Thank you. Good morning, everyone, and welcome to Perma-Fix Environmental Services third quarter 2019 conference call. On the call with us this morning are Mark Duff, President and CEO, Dr. Lou Centofanti, Executive Vice President of Strategic Initiatives, and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing third quarter 2019 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 and include certain non-GAAP financial measures.
All statements on this conference call, other than a statement of historical fact or 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, as well as this morning's press release. The company assumes 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. In addition, today's discussion will include a reference to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison to its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release and on our website.
Now let's turn the call over to Mark Duff. Please go ahead, Mark.
All right. Thanks, David. We're very excited to report our third quarter earnings today, which we believe demonstrates the success of our growth strategy over the past few years. Our entire company has been focused on the implementation of this strategy and significant time and energy by our management team as well as our staff has been spent to reach these growth objectives, which are reflected in our third quarter performance. These accomplishments set the stage for our performance in 2019 as well as the next several years. Specifically, I'm pleased with performance as we see strong third quarter operational and financial performance in both the treatment and services segments. Perhaps more important even is we're very well-positioned heading into fourth quarter and next year. I'll take a minute to recap some of our financial highlights, and later Ben will discuss the financial results in more detail.
Our revenue for the third quarter increased 88% to $22.5 million. Our services segment revenue increased 332% to $12.4 million. Our treatment segment revenue increased 11% to $10.1 million. We generated adjusted EBITDA of $2.4 million compared to $510,000 for the same period last year. Lastly, we received net income attributable to common stockholders of $1.8 million or $0.15 a share for the third quarter of 2019, compared to $221,000 or $0.02 a share for the same period last year. As a result of this growth in our improved contract backlog within the services segment, we believe that our financial outlook for the remainder of 2019 and 2020 remains very strong. As we've announced through press releases in the past several months, Perma-Fix has realized several successful contract wins that directly impact our services segment performance, both operational and financially.
These wins have included several new projects with the Department of Energy cleanup program, as well as commercial clients, Department of Defense projects, and rapid growth in Canada conducting contaminated soil remediation. Our success in managing these recent projects has resulted in development of a positive client reference base that is critical towards future procurement for both prime and subprime contract opportunities. This momentum has been bolstered by a plethora of new business opportunities in both government and commercial sectors directly in line with the Perma-Fix offering, which provides an exciting growth outlook for coming years. Our performance over the past four or five months has also allowed Perma-Fix to strengthen our management team through additional key staff in the services segment to include senior project managers, engineers, and experienced technicians to bolster our project performance and our customer relations with the new procurements.
In addition, we've been able to enhance our offerings through new technologies, including our Perma-Sort soil sorting system, with two new successful procurement wins this quarter that will support deployment in 2020. Within the treatment segment, we've broadened our offerings through ongoing expansion within each of our three treatment plants to include new comprehensive equipment dismantlement capability at our Northwest facility, continuing construction at our Oak Ridge facility to support increased storage and new treatment system deployment, and significant upgrades to our Florida facility to enhance efficiency and improve our working conditions. We believe these steps position us to support new procurements within the DOE, as well as broaden our offering to several targeted DoD initiatives. The DML diversification unit at our Perma-Fix Northwest plant is performing very well, and we continue to increase efficiency.
This new capability allows us to address a large inventory of reactive waste currently stored at several government locations and provides a substantial multi-year backlog from the new incremental waste stream. As I've discussed in the past, the inventory of this waste stream is estimated to be in excess of $100 million, including large inventories at Idaho as well as at Hanford and here in Oak Ridge. We are continuing to progress on the expansion of our Tennessee and Florida locations while managing our capital spending. Once complete, we anticipate ROI in excess of 40% for both these initiatives. We expect these initiatives to be completed in the second or third quarter of 2020. For this reason, we continue to focus on expanding our market base in the treatment segment to address the market initiatives within both utility and conditioning sectors.
As discussed on our last call, we finally completed the closure of our M&EC facility, which consolidates waste treatment capabilities within the three remaining facilities. As a result of this closure of the M&EC facility, we received $5 million in cash previously held as collateral for the facility under our financial assurance policy. The Perma-Fix team remains focused on safety on all of our projects and facilities while continuing to drive growth through innovation to our clients that result in tangible cost savings and value. Over the next few quarters, we anticipate the announcement and launch of additional capabilities that will directly result in sustained growth and financial stability in both waste treatment and our nuclear services offering. To wrap up, we're now seeing the benefit of our strategic initiatives over the past few years.
In addition to our strong revenue growth, we've seen the benefits of our initiatives to improve operational efficiencies within our organizations as well. As a result of today's report, we've achieved net income of $1.8 million for the third quarter of 2019. Overall, we're extremely encouraged by the outlook for the business. As we continue to grow our services business, this provides us a good visibility into future quarters. At the same time, we're advancing a number of significant opportunities to leverage our fixed waste treatment facilities, providing innovative treatment options for a variety of nuclear waste streams that will broaden our market base. We continue to enhance our balance sheet and anticipate further year-over-year growth, strong cash flow, and sustained profitability in the fourth quarter of 2019 and heading into 2020.
On that note, I'll now turn the call over to Ben, who will discuss the financial results in more detail. Ben?
Thank you, Mark. I'll start with revenue. Our total revenue from continuing operations for the third quarter was $22.5 million compared to the prior year of $12 million. Revenue from the service segment was $12.4 million compared to just $2.9 million in the prior year. That's an increase of $9.5 million or 332%. This increase is a direct result of the increased project work in the segment, primarily from contracts awarded the past few quarters. Revenue from our treatment segment, $10.1 million compared to $9.1 million in the prior year, an increase of $978,000 or 10.7%. This increase is primarily from higher average pricing from waste processed and disposed of. For 9 months ending September 30th, our total revenue is $51.4 million compared to $37.8 million the prior year. Both of our segments' revenues have increased compared with prior year.
The service segment increased by 101% from increased project work, while the treatment segment revenue is up 10.6% on that average higher pricing. Our cost of sales was $17.4 million compared to $10.2 million in the prior year. Cost in the treatment segment decreased $796,000 as a result of a decrease in the closure expenses at our M&EC facility of $1.1 million last year. The decrease was offset by increases in our variable costs, which relates to revenue, while our fixed facility costs remained relatively flat. In our service segment, cost of sales increased by $8 million as a result of the increase in revenue. Our gross profit for the quarter was $5.2 million compared to $1.8 million in the third quarter of 2018. That's an increase of $3.3 million or 182.6%. Excluding the $1.1 million reduction in closure expenses at M&EC, gross profit increased by $2.2 million or 76.7%.
Gross profit was impacted from higher revenue in both segments as fixed costs increased only marginally in the service segment despite the significant increase in revenue. For year-to-date, gross profit was $10.9 million compared to $7.2 million last year. This increase is the result of higher revenue in both segments and the reduction of closure expenses at M&EC, offset by higher fixed costs. Our SG&A for the quarter was $2.9 million or 13% of revenue, up from $2.6 million or 22% of revenue last year. This is due to higher labor-related expenses. Year-to-date, our SG&A was $8.5 million, or 16.6% of revenue, compared to $8.1 million, or 21.3% of revenue in 2018. Higher payroll-related and property expenses were the main drivers for this increase. Our income from continuing operations net of taxes for the quarter was $1.9 million, compared to $317,000 in last year, 2018.
Year-to-date income from continuing operations was $1.7 million compared to $1.4 million the entire year. We had a net income attributable to common shareholders for the quarter of $1.8 million, compared to last year's net income of $221,000. Year-to-date income attributable to common shareholders was $1.4 million, compared to $965,000 last year. We had basic and diluted net income per share for the quarter of $0.15, compared to net income per share of $0.02 in the prior year. On a year-to-date basis, basic net income per share was $0.12 compared to $0.08 the prior year, and diluted net income per share was $0.11 compared to $0.08 the prior year. Our adjusted EBITDA from continuing operations for the quarter, as we defined in this morning's press release, was $2.4 million, compared to $510,000 last year.
Our year-to-date adjusted EBITDA from continuing operations is $3.5 million, compared to $2.1 million the entire year. Turning to some key balance sheet activity compared to 12/31/2018, our cash on the balance sheet was $2.4 million, compared to $810,000 at year-end. Cash from the finite risk fund and the improved operating performance were the main drivers for that improvement. Our accounts receivable and unbilled receivables collectively have increased by $9.2 million, reflecting the increased activity in the service segment. Our current assets are up $710,000 due to higher paid expenses, primarily from the renewal of the company's insurance program. Our operating lease right-of-use assets was $2.6 million, representing the present value of operating leases as a result of implementing the new ASC 842 lease regulation.
We're down $4.5 million, primarily from the release of the $5 million of finite risk sinking fund and closure of the M&EC facility. Our current liabilities from continuing operations were up $4 million, primarily due to increases in the services segment. Backlog at quarter end was $10.6 million, down from $11.1 million at year-end, but up from $9.4 million at September 2018. Our long-term liabilities from continuing operations were up $3.3 million, primarily from the new accounting for leases under ASC 842, of which $2.4 million of the increase represents the present value of our operating lease liability. Our total debt at quarter end was $5 million, excluding debt issuance costs, of which $2 million is owed to PNC Bank, $2.3 million to our shareholder loan, and $270,000 for other financial debt.
I'll summarize our year-to-date cash flow activity in September 30, 2019. Cash used for continuing operations was $3 million. Cash used for discontinued operations was $469,000. Cash used for investing in continuing operations, primarily capital, was $812,000. Cash provided from investing activities from discontinued operations was $100,000. Cash provided from financing was $1.1 million. This is made up of our monthly payments to our term loan of $717,000, net payments to our revolver of $639,000, $2.3 million from funds received from the shareholder loan net of repayments made, and other lease financing of $119,000. Before I turn this all over to questions, I'd like to take the opportunity to discuss the fixed cost savings in the treatment segment that resulted from the M&EC closure.
At the time the decision was made in 2016 to close M&EC, we anticipated this would result in a decrease of fixed facility expenses between $4 million-$5 million. The non-cash reductions in depreciation and amortization accounted for about $2.4 million of this amount, while the other fixed costs included labor, completion labor represented the cash savings. The cash savings portion turned out to be approximately $1.9 million for a total fixed cost reduction of $4.3 million. The facility is now closed, and we are not incurring costs at this location, so the $4.3 million savings have been realized. Since the announcement, which was over three years ago, the segment has evolved and the strategic changes and other changes that have increased in other operating expenses. In 2016, treatment revenue was $32.5 million, this year, 2019, we're annualized estimate trending at about $40 million.
About $5 million of this increase has come from new business that was not at M&EC. In order to generate this new revenue, we've incurred additional labor and the cost of living increases that have increased payroll by about $1.5 million. The other big number that's gone up has been the healthcare costs, which have increased about $400,000. In addition, certain costs have been incurred at M&EC through June of 2019 this year, and there have been a few other unusual costs which annualize at about $1 million, which should not recur moving forward. In summary, our fixed costs of goods sold in 2016 were approximately $19.5 million. Three years later, our third quarter annualized run rate of these fixed costs are $17.5 million.
That comes from a decrease of $4-plus million at M&EC, which is partly offset by the $2 million of costs from new business and inflationary related increases. With that, operator, I'll now turn the call over to questions.
Thank you. To our audience joining today on the phone, if you would like to ask a live question over your telephone line, simply press star and one on your telephone keypad. Pressing star and one will place your line into a queue. Also a friendly reminder, if you're joining us today on a speakerphone, please return to your handset before pressing star and one to ensure that your signal does reach our equipment. Once again, ladies and gentlemen, that is star and one if you would like to ask a question. We'll go next to the line of Howard Brous with Wellington Shields.
Thank you. Mark, Ben, congratulations on just not only a great quarter, but the whole process of what you've been doing since you joined the firm, Mark. Congratulations. I'm much impressed.
Thanks a lot, Howard, for what you said.
You're very welcome. I have just a couple of questions. One specifically, Mark, on a going forward basis, how do I look at the split between treatment and services, say, not for the fourth quarter, but certainly for 2020 and 2021? Could you give me some sense of that, please?
I'd have to say right now we'll probably close this year in the 50/50 range. just about half. next year it'll be more 40%-60%, 60% being services. we see a much steeper services revenue increase. the margins are not as much as the treatment side. it's 50/40 for next year at least, and probably split to 70 in the following years.
70/30, 70 being services, 30 being treatment?
Correct.
Okay. Ben, just a couple of specific questions here. I'd like to talk to you offline about some others once the Q is out. When do you expect the Q, by the way?
We are hoping to get it out today.
It's probably out.
Thank you. All right. Tell me, EBITDA and varied free cash flow. Give me some sort of a sense now and on a going forward basis.
Well, on a going forward basis, one caveat is we are ramping up our capital spending for some of these initiatives. That would be your biggest reduction to a free cash flow. Generally, we expect EBITDA to continue to be strong. Much of the cash from the finite risk money was really to pay the bills that had accumulated from the closure, and we're past that now.
No, I realize that. That's what I meant by just on a going forward basis, say, looking at 2020, just as an example.
Right. Yeah, I think you're going to see the EBITDA. Our cap spending, again, is probably the only thing that we've got pretty good NOLs, so we're not paying taxes for the next little while.
Right.
Really the cap spending, which we're not going crazy with cap spending per usual. We used to spend in the million range. I think we're going to be looking at more like $2 million a year for the next little bit because of some of the new initiatives. I think you can take your EBITDA estimates and just factor in about $1.5 million-$2 million of cap spending for free cash flow.
All right. Unbilled receivables, $9 million, and that's a very good number compared to December of last year. When do you think that runs off? Obviously, they build up over time, so I'm just talking about current. When does that convert to revenue?
Immediately. Howard, most of our unbilled, because of the service business, it's a bit of a process to get an invoice put together. Every invoice every month is like a small phone book, for those of you who remember phone books, and we backlog. We book the revenue at the end of the month, and we usually slip the bill in about a month.
I'm old enough to remember a phone book.
Yeah, that's a reflection of the increase in the service side, and those invoices slip.
Usually within 15 days.
All right. One last question, and I'll defer to when the key comes out and give you a call then offline. I just have to laugh. Allowance for doubtful accounts is up? What part of the government isn't paying you?
Well, we have other customers that are not necessarily government, and we have a standard model where we just accrue when certain things get aged. Some of those good government customers you're talking about like to nickel and dime us with details and paperwork, and sometimes it ages. It's usually reversing once they do pay.
All right.
We sort of have a process by aging how we go up. Nothing that's of great concern right now.
One last from Mark, if I may, please. If I look at a year from now, how will I look at the company? We talked about certainly services at 60%-70%, 30%-40% treatment. What kind of revenues do you think we could be looking at, say, the end of 2020 on a going-forward basis?
Our goal has been for quite some time, actually two, three years ago, we said this goal is by the end of 2020 to be annualized at $100 million. That's been our goal, our focus, and we feel like we're on that track. A lot of things can happen between now and next year, but we anticipate meeting that goal on an annualized basis, on a monthly burn basis.
Thank you again, Mark, and congratulations.
Great job.
Really well. Thank you.
Thank you.
My pleasure.
Thank you. Once again, to our phone audience, if you would like to signal for a question, that is star and one. Again, please be sure that you return to your handset before voting star and one to signal. We will move next to the line of Walter Shanker. Excuse me. You're a private investor, rather. Please go ahead, Walter. Your line is open.
Sure. This is Walter Shanker, J.Z. Capital Advisors. Two questions. First, as you ramp up service contracts, that requires hiring a significant number of people. To what extent, as you work through those contracts, which are multi-period contracts, do these teach people through a learning curve and therefore become more efficient and profitability could improve as you work through these larger contracts? That's the first question.
Yeah, Walter, that's tough to quantify, but you're obviously right. We've hired 80 people in the past two quarters, starting at about the April timeframe. We have hired a lot of new folks on, but not so much that require a lot of training. We've been able to find people for our projects that are willing to go on the road and support the field operations as well as some here and in the corporate as well as the treatment plants. That really hasn't been difficult yet as far as having to train folks. The impact of that ramp up, there may be a few weeks of inefficiency, but we're off and running all our projects within a few weeks, and we typically build that into our schedule that we put in our proposals, that we're going to have to train a certain number of people.
We may have a couple of weeks of ramp up, but for the most part, it's negligible so far.
Second question. I'm just going to read a sentence. At the same time, we're advancing a number of significant opportunities to leverage our fixed-base treatment facilities by providing innovative treatment options. Can you put a little more color on what some?
Sure.
-of those opportunities might be?
The plants themselves, each plant, we're looking at new technologies. As of a few calls ago, the thing we've been doing very well, our business development side has been doing very well, is defining waste streams that either can't be treated that are out there, which is a surprising large number, or waste streams that we can't treat efficiently. In fact, either other people are treating, or that aren't being treated at all, or are being treated inefficiently or more expensively. We're looking at those inventories, we define those, and then our technical folks and engineers define technologies that can do them less expensively or at least efficiently. We're in the process of doing those at each of our sites. New ones, we did several last year when we talked about GeoMelt and the water program in Florida.
We've got similar ones going on here in Oak Ridge to treat Freon and to treat some other waste streams that are coming into view. When those technologies get completed, then we'll start marketing them and balancing some currencies and those kinds of things. At each plant, we hope to have some type of improvements each year and broaden our inventory that we can treat.
Okay. You still are at some point waiting to hear what might happen at Hanford to expand this?
We are. The Department of Energy keeps delaying that award, and I'm not sure what the new date is now. Last time we were at a conference, and they talked about it was supposed to be in the December, January timeframe. I suspect that it will probably push out from there. I'm not sure where it is, and I do all the speculation to make a guess as to when that would be.
Okay. Thank you very much.
Thank you, Walter.
Next, we'll hear from the line of Avi Fisher with Long Cast Advisors. Please go ahead. Your line is open.
Hi, Mark. Again, echoing what other people said, you're doing a good job on the turnaround. I think your industry had on the effects. AECOM just sold its managed services business. Fluor is considering the sale of theirs. What are you seeing out in the industry? Do you see yourselves as buyers? Just wondering if you could just chat a little bit about how the industry might be shifting as these large primes go into changes.
That's a really interesting question, Avi. I don't know what to make of AECOM, Fluor situations, whether they're related at all or indicative of industry trends or more just indicative of those firms and where the rest of those guys are. I can speculate and say that it seems like most firms have been tied to oil and gas and had to make some adjustments along the way based on changing margins and those kinds of things. That's just speculation on my behalf. As far as our industry goes, it hasn't changed that much. The amount of funding that the Department of Energy has in the PNNL program has been somewhat flat the last couple of years. It's increased over prior years. There's a lot of opportunities to bid, way more than normal. As far as we're concerned, it doesn't really have much of an impact.
It does impact who we team with and what subcontractors or what smaller team partners there are on each team. In general, we've grown in the same niche. Irrespective of how those firms evolve and change, our niche is waste management and rad protection services, and that stays the same. In that market or sub-market has been growing. As we build our technical staff, we have more to offer along with our technologies. To answer your question really directly, it has a limited impact on us. I think it's more changes are more indicative of each firm's specific situation.
Do you think it changes your ability to gain share?
Not really. The big boys, you can throw AECOM, Fluor, and Jacobs, BWXT, and a few others in there. They're tier 1 prime contractors, and we're not. We're not going to bid on a billion-dollar contract. It doesn't have a big impact on us overall.
All right. Thanks so much. Appreciate it.
Thank you.
Again, ladies and gentlemen, if you are attempting to signal us today to ask a live question or get clarification on anything covered in today's release, be sure that you return to your handset before pressing star and one to be sure that your signal does reach our equipment. We'll hear next from a shareholder, Steven Fine. Your line is open.
Congratulations, guys. I think the interesting point in previous calls, there have been comments that what was promised didn't happen. It happened. I think in the last call, I remember Mark, you saying this should be the inflection quarter, and clearly it is. It's beyond my greatest expectations. Congratulations to you all. It's wonderful to watch a plan put into effect and it to be executed and so forth. Again, congrats. I find what's very, very interesting, as I learn more about this company is, and I guess I got to ask the question to you first, Mark. Do you talk service? Do you need to plant some service?
No, we define service, Steven, as a very clearly a field project. Services are projects or contracts that are not in the facilities, in the field, at a client site or support from our offices, but not in the plants.
Thank you. Ben, I got a question for you. If right now we were to rebuild the three plants, how much do you think that would cost?
Well, we get this question a lot. It's a lot of intangibles. Ballpark, probably $40 million-$50 million.
That's all?
Maybe more.
All right.
It's time, it's lawyers, permits. You got a lot of intangibles that it's hard to quantify the cost, but I'll give you that number.
Yes, it's probably plenty more.
Okay. I guess where I'm going here is when I hear you say, Mark, that down the road you should be 70/30 in service. That means that in essence, you could go, I mean, you're not going to do it because you're doing some neat stuff. That to me says, hey, you got a business if you don't need the plants down the road.
No. I would not assume that at all. Our plants provide a real entrée into our services and a real niche. For example, we've got a project out west right now where we're doing the remediation and doing the waste treatment. They're very linked together, and it's a real discriminator. No, I would say that we would not be the same company without these plants. You said $40 million-$50 million. That was the ballpark, but I'm sure Lou would agree that the permitting process for those are tens of millions of dollars. The permits are probably equal in value to the actual facility.
Okay. All right. The exciting thing to me, having some background in government contracts, is that you're evolving a business where, like a customer like Hanford, like the gentleman asked, comes along, it's just icing on the cake. As you're building a business that can stand by itself, particularly when you say that the greater proportion of the business is going to be service, and that's great. If you have a change in government, or what have you, or you get impact there, you're going to have a sustainable, escalating business because one would think as you get known more, you do more. At the same time, as you said, which I think is amazing, is that the approach that you're going through relative to the treatment is you're looking at these very esoteric treatments, you're looking at very esoteric things, and your capabilities are esoteric.
Anyway, that's about all I have to say. The other point, which no one has brought out, is you did $53 million in sales through three quarters. What'd you do last year? 40? In the whole year, you did what, 49-50?
$49 last year, yeah.
Yeah. You did $53 million in three quarters. Okay? No one's brought that point up. We clearly have an escalating thing, which also creates pressure on you because henceforth, you got to keep moving forward. Anyway, this sounds very exciting. Thank you. Thank you for allowing me to be a stockholder.
Thanks, Steven.
At this time, we have no further signals from our audience. I'd like to turn it back to Mr. Duff and the rest of the leadership team for any additional or closing remarks.
All right. Thank you. I'd like to thank everyone for participating in our third quarter conference call. As I mentioned earlier, we're pleased with the Q3 results, which reflects the success of our strategic and business development initiatives over the past two years. We remain highly encouraged by the outlook of the business in Q4 as well as into 2020. Thank you very much.
Ladies and gentlemen, this does conclude today's earnings conference. We do thank you all for your participation. You may now disconnect your lines. Have a great day.