Greetings, and welcome to the Perma-Fix Environmental first quarter 2019 business update conference call. At this time, all participants are in 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. I would now like to turn the conference over to your host, David Waldman, Investor Relations. Please go ahead.
Thank you, Hector. Good morning, everyone, and welcome to Perma-Fix Environmental Services first quarter 2019 conference call. On the call with us this morning are Mark Duff, President and CEO, Dr. Louis Centofanti, Executive Vice President of Strategic Initiatives, and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing first 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 this 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, including 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 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 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. In addition, today's discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website.
I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.
Great. Thanks, David. The first quarter was challenging due to several factors, but overall, we're very well positioned heading into the second quarter and the balance of this year. Starting with our treatment segment, revenue increased to $9.9 million for the first quarter compared to $9 million for the same period last year. We achieved these results despite roughly three weeks of very cold weather, and shipment-related delays at our Northwest facility, as well as delays in permit approvals due to the government shutdown around the first of the year. These issues are behind us heading into the second quarter, and our backlog stood at approximately $9.9 million as of March 31, 2019. As a result, we're very encouraged by the outlook for our treatment segment. We've also concluded the cleanup at the M&EC facility and are working to complete the final verification surveys.
While we're disappointed with how long this process has taken, we're now conducting the final verification process and working directly with the landlord and the state of Tennessee for release of the permits. We still expect this to happen later this quarter. As announced on our fourth quarter call a couple of weeks ago, we have completed testing demonstration of the GeoMelt vitrification unit at our Perma-Fix Northwest facility and have now formally commenced the commercial operations of the GeoMelt unit through a partnership with Veolia Nuclear Solutions. This new capability allows us to address a large inventory of reactive waste currently in storage and provides us a substantial multi-year backlog from a new and incremental waste stream. The government inventory of this waste stream is in excess of $100 million.
The construction activities are continuing at our Perma-Fix Florida facility to accept and treat radioactively contaminated water, and additional commercial waste streams as well. We've begun to receive water treatment backlog inventories now, and remain on track to commence operations through the summer. We also recently announced successful testing of our new patented and cost-effective in-ground separation technology for mercury-contaminated soils. As a passive system, this process differs from current separation technology that requires soil removal and on-site or off-site treatment. The new system operates in-ground by drawing the elemental mercury to a centralized collection point, at which time the mercury can easily and cost-effectively be extracted from the ground. As a result, the passive system has the potential to significantly lower lifecycle remediation and treatment costs.
Based on some of the near-term objectives within the Department of Energy, mercury remediation technologies will play a key role in providing a comprehensive solution to be represented in several procurements over the next few years. Turning to the services segment, we experienced temporary weakness in Q1 due to the timing of projects. However, as previously announced, we've been awarded several substantial new projects, all commencing in the second quarter of 2019. Each of these projects have now been signed, transitions have been successful, and we are progressing on schedule. In fact, a few of these are actually growing. We estimate the collective value of these contracts to be approximately $17 million through 2019 alone. These contracts have significant potential growth in the future years as well. These wins include remediation work in Canada, as well as several Department of Energy locations throughout the U.S.
We believe these awards are a direct result of the improvements we made last year within our business development organization. As a result, we're also bidding on a number of other additional large contracts and look forward to providing future updates in the next few quarters on those. To wrap up, we're about two years into our strategic plan for growth. While progress has been slower than anticipated, we remain optimistic about our future with the changes we've made to become more efficient and the investments we've made to support growth. These changes, beginning with the M&EC closure, have included expansion of treatment capabilities, enhancement of our marketing and sales programs, and broadening our market base with waste receipts. Each of these initiatives have begun to support revenue increases and positive margin growth that will strengthen our 2019 profitability.
As an example, we're starting to see the benefit of improvements we made last year through our business development organization, as illustrated by the over $17 million in contracts awarded in March alone. We are actively bidding on a number of additional large projects within both segments and look forward to providing further updates as these developments unfold on these procurements. On that note, I'll turn the call over to Ben, who will discuss the financial results in more detail. Ben?
Thanks, Mark. Starting with revenue, our total revenue from continuing operations for the first quarter was $11.7 million, compared to prior year of $12.7 million. The treatment segment revenue increased by $946,000 or 10.6%. It was offset by the reduction in our service segment of $1.9 million. Winter conditions, as Mark noted, at our Northwest facility impacted the volume of incoming waste. The positive pricing and beginning backlog debt provided for increased revenue in the segment. Our service segment was down due to minimal activity in our largest contract as we awaited the award of the next phase, which was received in late March and began in April. The cost of sales was $9.2 million, down slightly from prior year costs of $9.3 million. Variable operating costs were down $723,000 due to the improved mix of treatment waste versus service revenue.
This increase, though, was offset by higher fixed costs related to payroll expense and closure costs. Our gross profit for the quarter decreased from $3.3 million in Q1 of 2018 to $2.5 million in Q1 of 2019, a decrease of $820,000 or 24.7%. Our treatment segment gross profit was up $177,000 due to the increased revenue, while our service segment gross profit dropped by $997,000 due to the lower project revenue. Our SG&A costs for the quarter were $2.9 million, up slightly from $2.8 million last year, primarily the result of higher bid and proposal expenses and increased payroll. Our loss from continuing operations net of taxes for the quarter was $550,000, compared to income of $253,000 last year. We had a net loss attributable to common shareholders of $672,000, compared to last year's net income of $136,000.
We had net loss per share for the quarter of $0.06, compared to net income per share of $0.01 in the prior year. Our adjusted EBITDA from continuing operations, as we defined in this morning's press release, was $67,000, compared to $789,000 last year. Turning to our balance sheet as compared to 12/31/2018, our cash balance at the end of the year was $345,000, down from $812,000 at year-end. The remainder of our current assets were fairly consistent with year-end. We do have an operating right use of asset now on the books totaling $2.6 million, which represents the present value of our operating leases as a result of implementing the new lease accounting guidelines, ASC 842. Our current liabilities also were relatively flat, including our unearned revenue, which decreased approximately $1.2 million.
Our backlog of waste at the end of the quarter was approximately $9.9 million, which is down from $11.1 million at year-end, but up from $7.9 million at the end of the first quarter of 2018. Our total debt at the end of the quarter was $3.4 million, which is primarily owed to our credit facility, PNC Bank. Finally, I'll hit on a few cash flow numbers. Cash used by our continuing operations was $147,000. Cash used by discontinued operations was $182,000. Cash used for investing in continuing operations was $223,000. Cash provided for investing of discontinued operations was $25,000, and cash provided for financing was $137,000, which is made up of our monthly payments to the term loan of $304,000, net proceeds from the revolver of $365,000, and other lease financing of $76,000. With that, I'll now turn the call over to questions.
Thank you. At this time, we'll 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 would 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 please while we poll for questions.
Our first question comes from the line of Anthony Marchese, private investor. Please proceed with your question.
Hi, guys. Question regarding, can you give us any update on, or if there's anything that's publicly available on your work with the DOE?
Well, probably about-
With the certification, yeah.
I'm sorry?
Yeah, I'm sorry. With the technology you have for the DOE. That's what I meant.
Yeah. Right now, about 60% of our revenues is through the Department of Energy. We have a lot of different technologies. If you're speaking about Hanford specifically-
Yes.
Yeah. The TBI, what we call TBI, which is the Test Bed Initiative, is ongoing. They're making great progress. Most of the emphasis on TBI right now is on the in-tank extraction unit. That system, process, and associated permitting for that, DOE and the other part of the team is managing. That's all on track. In fact, there's a, I think it's out for public comment now, out of Hanford in regards to that system. To answer your question, things are moving forward. We're still anticipating to begin receipt of that TBI waste, which is 2,000 gallons, in the fourth quarter of this year.
Okay, great. Thank you.
Our next question comes from the line of Steven Fine, private investor. Please proceed with your question.
Good morning, gentlemen. How are you?
Good morning.
Hi.
All right, I got a bunch of questions. One, let me understand the sales. You're telling me, you're saying you did $11.7 in the first quarter. You have a backlog of $10 million in treatment, and then you have $17 million, which you have signed in service. That's roughly about $38 million, on May 10th, when you did $50 million last year. Is that correct?
Those numbers that, yes, those numbers are correct.
If we pro-rate this, and this keeps going this way, you're way ahead of last year.
Absolutely. Particularly in regards to revenue, we're significantly ahead of last year with that $17 million, particularly, that is all 2019 spend. We're significantly ahead of last year in revenue.
Do you have a safe projection? I mean, like $60 million-$70 million? You've got to be exceeding the way you're going right now. Then, with all the aside from the TBI, do you have any, let's say, what I used to project, I used to go high, low, and average. Is there an average expectation?
Steve, I'm hesitant to do that because this business, we each project the services business with funded backlog. Like these new contracts we have, we can clearly say we have $17 million in funded backlog for this year. Projects are off and running. They're funded, they're rolling. What's difficult in this business is on the waste treatment side. Because even though we have $10 million in backlog, when we say that, basically, we have $10 million in inventory that we have contracts for, funded for, paid for in some cases. You're dependent on a lot of things to continue those receipts through the year. In other words, even though we're doing great compared to last year, where we're sitting right now, a lot of things can happen.
I'm very hesitant to say that we're going to be dramatically higher overall than last year, but I would certainly anticipate a growth 15%, 10%, 20%, even if we just stayed on current path for, and that's for revenue, for the year that we're heading on right now. We have a lot of outstanding bids, Steve, as we always do. We were doing better on them. We're in a position now with a couple more of those bids coming through successfully, we're in a position for real growth. Hopefully we can start realizing those wins, and come out on top of those wins, in the next couple of quarters.
Yeah, I didn't realize that the $17 million was totally in service, the contracts that you were signing in March.
Yeah, they're all served.
Yeah. Well, that's wonderful. One question. When you say that as of the end of March, you had $10 million in treatment backlog, how much of that represents the GeoMelt?
Probably, the GeoMelt inventory we have right now will go a couple of years. I would probably estimate that to be, for the rest of this fiscal year, between $1 million and $2 million.
Just $1 million and $2 million?
$1 million to $2 million, yes. Just what we have in backlog right now for that, correct.
All you're going to do in GeoMelt this year would be $1 million-$2 million?
Left this year, yeah. The reason is, even though we have a good backlog of that, we're still in treatability study mode. While we're fully operational-
Right
It's not going as fast as we'd like, but it is going as far as it's operationally designed right now.
That's only one area. No, when you look at everything. All right. With regards to the closing down of the plant, I'm somewhat confused on this. I understand you made an accounting adjustment for the $5 million pigeon fund you'll get when you're done. When you're done, are you actually going to get an influx of $5 million?
Yes. Steve, we have about $16 million of cash that collateralizes our closure at all of our plants.
Right.
It supports an insurance policy in the event of any closure requirements. When that plant is closed, our closure requirements at that plant alone are going to go down, ballpark, $11 million or $12 million of financial assurance requirements. Because of that, the company, AIG, that holds that collateral, is releasing $5 million of cash. So that is.
You Yeah. I'm sorry.
Yeah, that's on our balance sheet. It's classified right now under finite risk as a long-term asset because, generally it's not liquid unless it's converting out. That is expected in this quarter.
It's figured in, but it will just transfer. It'll go from one thing to cash.
I'm sorry, say again?
Is the five? Can you hear me? I have an ear plug on.
Yeah.
Is the $5 million included in EBITDA now or will it?
It will not be included in EBITDA. It's just a shift from a long-term asset to the cash.
Got it.
Where you'll see the improvement is in the working capital number. You'll see it there.
Right. It's integrated in EBITDA right now.
Correct. Well, it's not an income. It's cash that we've basically put aside. It's almost like an asset.
All right. Thank you.
You will not see an EBITDA impact from this, an earnings impact. You'll just see liquidity improvement.
All right. Well, you'll have physical cash.
Correct.
Okay. When is medical going away, period? I saw in the last quarter, you said you wrote off a lot of stuff because some assumptions, but I noticed there was still a number there. The statement has been made that the medical project's being done by other people. When are we not going to see any write-offs relative to medical?
Medical, we'll still be incurring some expenses in medical over time, and it's constantly being reviewed, with our present plan of where our partners are funding most of the work. At this point, you'll still see, over the short term, some expenses.
Steve, while that analysis is ongoing, the net cash output from that segment right now is about $10,000 a month.
Okay.
There's pretty minimal spending. It's just maintenance. It's being a public company. There's certain accounting, audit, and legal costs we have to incur. Otherwise, everything is being done in these arrangements that we've set up with these foreign countries, where they're doing all of the research & development for nothing.
When Mark made the statement that because of the bad weather, permit approvals were impacted, can you address that?
Yeah. We had a lot of exemptions and transportation-related permits for some of our unique waste shipments. They go through DOT and through the regulatory community. Those were impacted by the government shutdown, and so they were delayed a couple of months. It just backed everything up into through the year, but it's just now starting to loosen back up, back to normal.
The new technology that you're talking about with regards to mercury, when will that be commercialized, and do you have any sense of the potential for that?
It's difficult to find potential at this point, because it's unknown where all the opportunities are and how this will apply to all of them. The value that we bring to the table on this is an upcoming procurements that are in the near term, in other words, one or two years, where we know there's mercury remediation in soil that's required. This is a unique, cost-effective, and very inexpensive approach to remediation of those soils to pull that mercury out. It's difficult to answer your question, Steve, because until we see the procurement, until we see what the objectives are, define the applications, we're on the early side of that, and we'll start seeing that develop here with Oak Ridge first in the next year or so.
In other words, you go and you develop technology, and you don't know the size of the market? I'm not being sarcastic. I'm presuming you have some sense of the size of the market when you go develop something.
We do. We understand. It's just difficult to put a number on it because we're not sure to the extent that this technology will apply to all. In other words, if there's mercury across the entire site, it's not going to work for the entire site. It's hard to say how much it'll apply. We're just not in a position at this point based on the fact this procurement's going on and coming up, to put a number on it.
I consider myself a reasonably technical person, and it just amazes me how you guys constantly develop these new things and so forth. My favorite subject. When are you going to be awarded the tank closure contract?
I'm pretty sensitive to talk about these procurements, Steve, at this point. Right now, the award is scheduled by the [Perma editor] to be announced in early July or early in the third quarter, and transition to begin in August. We don't know anything between now and then, but that's their current schedule.
With regard to the last call, you mentioned that there was a verbal presentation. The oral presentation, has that been completed?
That's been completed. That was completed in early April and so now we wait.
I see. Presuming you're in play here, are there other Do you go back in and have to explain your stuff? I mean, is it an ongoing process or is it now just a wait for the decision?
Right now it's pretty much a waiting for the decision, yes.
I have another question. You talked about that with regard to the TBI, that you're really waiting for the machine that will provide you the 2,000 gallons. That machine is a separate machine from the machine that's being permitted that does larger amounts in the tank farm. Is that correct?
That's correct.
Okay. My question is, presuming, since you're saying you won't be finished with the 2,000 gallons for TBI till last quarter. If for argument's sake, you were part of a consortium that won the tank closure, why couldn't you use the bigger machine to get your 2,000 gallons?
That's a great question, Steve, I'm afraid I just can't address anything associated with that.
All right, fine.
It's a fine question, though.
All right, good. I'm glad that's acknowledged. All right. Well, look, this company, the more and more I learn about your company, you're obviously very esoteric. You're in a niche. There aren't too many people who can do what you do, and that's what has to be realized. Frankly, I'd like to see you have a greater world footprint because the more and more I read about nuclear, it seems like there's a lot going on in the world with this. Part of the equation, if you're talking nuclear, has to be waste. You don't see enough discussion about that. Anyway, I would hope to see that your sales would keep going, and we have a real positive year this year. Anyway, keep on trucking, guys, and thanks.
Great. Thanks, Steve.
Our next question comes from the line of Steve Levinson with Big Rock Research. Please proceed with your question.
Thanks. Good morning, everybody.
Good morning.
Just watching the investments that you've made in the water treatment, the soil separator and GeoMelt, I know you can't give a near-term outlook, but can you give us sort of a 30,000-foot view on what the expected or targeted returns are on those investments? Again, from 30,000 feet, I know it's not tomorrow, although you did say the water treatment has commenced, a sort of timetable for when we might start seeing things begin to pick up and ramp up.
Well, Steve, it's difficult to address all those, but I can say this, as GeoMelt, we're anticipating a $5 million to $10 million a year when we're at full production and revenue source. We are starting to get some bids out now where we can commit to processing. We had some delays with the State of Florida and some other issues at that plant, getting the system up and running. Now we're to the point where we can start putting bids in and be able to commit to processing. You won't get to those levels overnight, but you will hopefully within a year or two, once we start winning some of those awards and testing the market on our approach. Overall, Steve, it's difficult to say because your waste comes in sporadically, and it depends on the projects and the waste that's generated.
We do see growth overall in our waste treatment segment. Adding new technologies broadens that market and stabilizes it. Return on investment are typically very fast on these investments that we're making. In other words, we'll be able to pay off our investment, with just a few waste streams, sometimes one, sometimes three or four. They're very quick, and we just have to keep pounding away and implementing a marketing strategy.
Okay. Is that specific to the soil or the GeoMelt, or it's sort of a mix?
We still have a couple of soil segregation. We mentioned a couple of calls ago. We still have a couple of those bids outstanding we're waiting to hear on. They're taking much longer than anticipated.
The government acts slow when you want something from them.
That's exactly right.
Fast when they want something from you.
That's right.
Okay. I'm sorry, I know you mentioned Tc-99. Is there any update there? Is there any further testing or potential customers showing up?
Yeah. Lou mentioned just now, as far as the medical side goes, Steve?
Right.
Yeah, as Lou and Ben were just saying, we've slowed down investment significantly, and we're outsourcing a lot of the research and studies on this now. Lou, do you have anything else you want to mention on that?
No. We basically still have three groups looking at it, we think what their results should give us a very good idea if there's any value there. At this point, we're more looking, waiting for results from them to see what they think of it.
Okay. Thank you very much.
Thank you.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. One moment please as we poll for more questions. Our next question comes from the line of Wayne Miller, private investor. Please proceed with your question. Mr. Wayne Miller, your line is now live.
Oh.
Please address.
Okay. Thank you for taking my question. As I recall, the first Well, the fiscal 2018 year-end conference call, which occurred after the quarter was over, the quarter sounded a lot more optimistic than what the results have turned out to be. I just have a question, is how the hell can you not know what's going on after the quarter is over?
You're referring to the fact that Q1 did not turn out as good.
You were talking about it after it was over.
Yeah. Well, the bottom line is we had a lot more expenses in Q1 than we anticipated. We mentioned, we had some delays in shipments that had greater impact on the quarter.
It was already over. It was over on April 19th.
Yeah. We didn't see the impact of all the numbers until we closed the quarter officially.
Just to be sure, we filed on April 1st, not April 19th, it was over by a day.
Okay. Well, it just seems that the conference calls are always more optimistic than the results that show up 90 days later. That's an upset for me. Thank you.
Our next question comes from Steven Fine, private investor. Please proceed with your question.
I have one more, couple more things. My recollection of the last call, there really was no stating relative to what you had done, because I asked that question, and you really didn't have a sales number. The thing I remember is, you spoke about the $17 million, that you intended to. That were going to be signed. Basically what I'm interpreting relative to this past settlement thing is, you didn't have the cost at that time. The cost came up, because I see the picture rosier. You're way ahead, in projections of last year where you can sit and say, you had this much and then you had the $17 million. My question, the reason, my further question is, Mark, you had said that the 2,000-gallon thing should be done till the fourth quarter.
Presuming that's done in the fourth quarter, when would you expect a decision would be made relative to the final stage or moving forward? Do you have any sense of that?
Steve, I don't have a sense of that. It depends on the tank closure contract. Even more so than that, it depends on the final funding approval. This is funded through DOE technology development, and we haven't seen those final numbers, for the final budget yet. It depends on budgets. I would anticipate seeing some clarity on that irrespective of tank closure, in the next month or two.
Like for example, a couple, a week or so ago, the president was talking to the head Democrats, and they were talking about putting up $1 trillion for infrastructure. When they talk about infrastructure, do they integrate waste into those discussions?
No.
You know.
This is all through Department of Energy, and this is not associated with that.
Yeah, because, to me, having waste lying around is the same as having broken structure. Anyway. All right. Thank you again.
Our next question comes from the line of Tim Deacon, private investor. Please proceed with your question.
Oh, can you hear me?
Sure.
Yeah.
Oh, okay. All right. You talked about delays in shipments from the first quarter and so on and so forth. Some of these, all these factors are behind you right now in the second quarter? Shouldn't we get a nice boost in sales and earnings in the second quarter because we've got all this stuff that was being carried over? Do you feel confident in saying that second quarter this year is going to be substantially better than the second quarter of last year?
What I can say, Tim, is that our second quarter is looking, is significantly increasing over Q1 in revenue. We've got real momentum heading into Q3. All these projects we're talking about are ramping up. As you mentioned, the shipments are jammed up a little bit. They all kind of slid out. Some will be realized, some of those delays will be realized in Q2 and some Q3. We're looking at very strong revenue increases, obviously with these new projects, but also, a couple other initiatives that we're very excited about Q2 and particularly Q3.
You've got some delays that you're making up from first quarter, and then plus you've got these additional $17 million in new contracts. All of this should give you quite a boost, right, in the second and third quarter?
We're very optimistic, Tim, for both those quarters to be significantly increased.
Yeah. I think that last quarter, it seemed like your investors were enthused, but now they're disappointed. You guys have to instill some confidence in the investment community. I don't know. You got to get this company back on track. I don't know.
Yeah. Tim, I'm very sensitive to that. We really are, and the whole management team is, and that's why we're very hesitant to speculate too much until we start showing the numbers.
Yeah, I think it's important to build credibility here. You do presentations. You go around and do presentations to different groups.
At the end of the day, you got to put up the numbers.
That's right.
That's what the world turns on. Okay, well, listen, that's all. I just wanted to make a comment.
Sure.
All right, good. Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mark Duff for closing remarks.
Great. I'd like to thank everyone for participating in our first quarter conference call. As mentioned earlier, our treatment segment continues to grow with approximately $9.9 million in backlog as of March thirty-first. With our services segment, we recently awarded $17 million in new contracts and are bidding on many more right now. Several, which could be substantial, will be awarded this year. Overall, we remain extremely encouraged by the outlook for the business and look forward to providing further updates in the next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.