Greetings, and welcome to Perma-Fix Environmental's third quarter 2017 results and business update conference call. At this time, all participants are on 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 for today's call, David Waldman with Crescendo Communications. Thank you. You may begin.
Thank you. Good morning, everyone, and welcome to Perma-Fix Environmental Services' third quarter 2017 conference call. On the call with us this morning are Mark Duff, 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 2017 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, 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, as well as this morning's press release. The company makes no commitment to disclose any revisions of 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 reference 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 Dr. Lou Centofanti. Please go ahead, Lou.
Thank you, David, and welcome everyone. I'd like to first take this opportunity to formally congratulate Mark Duff on his recent appointment as CEO. He brings a proven track record, broad experience running companies, leading large projects at DOE, and managing growth in our sector. Since joining Perma-Fix over a year ago, Mark has done an outstanding job repositioning our service segment and enhancing our sales organization. He's helped advance new technologies and brought new opportunities within the treatment segment. This will help diversify revenue and drive sales going forward. Look forward to staying involved and especially in spearheading some of our key strategic initiatives, especially as it relates to advanced technologies and business development. Happy to say the transition is happening at an exciting time with new initiatives the company is pursuing and the growth opportunities ahead.
I cannot think of anyone better to help lead the organization in the next phase. On that note, I'll now turn it over to Mark.
Great. Thanks, Lou. Before providing an update on the business, let me first take a moment to thank Lou for his vision and leadership for over 25 years on this, and his particular support to me, which has also enabled Perma-Fix to become a world's premier nuclear waste treatment company in our industry. Thanks, Lou. Turning to our results for the quarter, we made significant progress across both segments by strengthening our offerings, expanding our market share, and laying the foundation for growth in our services segment through new initiatives that will leverage our core competencies. Specifically, we achieved adjusted EBITDA of $654,000 versus $852,000 for the same period last year. Although we achieved another quarter of positive adjusted EBITDA, we're obviously disappointed with the revenue from our services segment.
Strengthening this segment is critical to maintaining our sustainable growth, and will be the focus of our management team and specifically myself, to leverage our technologies and relationships from the treatment segment to grow the services segment. At the same time, we've implemented numerous organizational changes as well as new initiatives to increase efficiency in marketing and operations that will reduce our cost of goods sold. Within our treatment segment, revenue increased 22% versus the same period last year, as we received higher volume of waste shipments from our government clients. We're implementing a number of new initiatives to expand our suite of services as well. For example, we're offering our clients increased services prior to waste shipments to take advantage of our fixed base facilities.
We're also working with several industry partners to launch new technologies at our facilities, to generate additional revenue using their technologies in our currently permitted spaces. These are in our treatment plants in Gainesville and Hanford and here in Oak Ridge at DSSI. At the same time, we continue to make meaningful progress expanding our international and our commercial sales efforts, with particular emphasis on the Canadian markets. This quarter, we were awarded a master services agreement along with several other contractors to support large scale remediation projects in Canada. These projects include technical challenges which directly align with our current technology portfolio as well as our core competencies. In addition, we continue to see strong waste treatment opportunities in Europe as well as Mexico, that are expected to generate revenue in 2018 with shipments to our treatment facilities in the U.S.
Lastly, we are pursuing a variety of major initiatives related to new waste streams, and look forward to discussing these opportunities at the appropriate times in future earnings calls in 2018 as these projects come to fruition. As a result, we anticipate continued improvement in both revenue and profitability heading into the fourth quarter and into the new year. The growth in treatment was partially offset by weaknesses in our services segment, as I mentioned. As we mentioned last quarter, we completed a commercial project in December of 2016, which affected our year-over-year comparisons. We also had our largest nuclear remediation project delayed in this past quarter, Q3, which resulted in two months of schedule slip within the quarter. This project has since begun, and we're fully mobilized and operational, and is expected to maintain stable revenue generation through the spring of next year.
Heading into the fourth quarter, we're now seeing improvement in our services segment. Our project bidding has been very busy. Based on our historical win rates, we're confident we'll see benefit from these efforts heading into the new year. In particular, we've witnessed growth in the oil and gas sector as well as the mining sector, with increased management of what we call naturally occurring radiological materials, also referred to as NORM. These are generated from oil and gas and mining activities within these industries. With a proposal win rate of over 60% year to date, and with our 45 proposals submitted through Q3 of this year, we're now seeing the benefit of our proposal development center and our business development programs, which we've modified in the last year. Turning to our P&L, we continue to carefully manage expenses, identify new areas for cost savings.
We're on track to complete the closure of our M&EC facility by January of this coming year, so basically in about two months. We believe we will save an estimated $4 million-$5 million in fixed costs annually, which is a big deal overall on our balance sheet. Lastly, we continue to explore a variety of strategic options related to our medical subsidiary. We're in active discussions with a variety of potential partners, and we'll provide a further update as soon as practical on our medical. To wrap up, we remain extremely encouraged by the outlook for both the services and treatment segments. Based on our current pipeline, we remain confident that we'll both see top and bottom-line improvement in the fourth quarter, and believe we have set the stage for sustainable growth in 2018 and beyond.
Before I turn it over to Ben, I do want to address one other item regarding specifically the Test Pit Initiative at Hanford, what we refer to as the TBI Project. We know there's been lots of interest from our investors in this. We certainly understand that our investors have requested and have a need for more information relevant to the progress of this program. However, I want to reiterate that our client, the Department of Energy, who's been very supportive of this project, has requested that all inquiries regarding the status of the project be directed to their public relations department. To assist in providing some background and some underpinning for this important program, we'd like to direct investors to our website, where we've included three new links to current public information.
The first link we've included is to the February 2017 GAO report, which I believe we referred to in prior quarterly calls. This report defines the fiscal risks associated with the current approach for treatment of the Hanford tanks as defined by the GAO, along with their recommendation for how to reduce that risk. Secondly, on our website, we have the September 2017 report by the Energy Communities Alliance, also known as the ECA report. This report provides a recommendation from the communities to DOE, recommending the TBI Project specifically, again, underpins the push forward with the TBI Project. Finally, we've included on the link the Saturday, November 4th article in the "Tri-City Herald" in Washington State.
The "Tri-City Herald" had an article that provides additional detail regarding the status of our program, and the receipt of the initial three gallons of waste from the Department of Energy. Perma-Fix views the article to be accurate and complete, at least at this point. All other inquiries will have to go to DOE. I do want to underscore again that we have completely revised our website, launched a whole new website last night actually. We're very proud of it. It has a lot more updated information, presents our current capabilities in a much stronger way. We've included all three of these documents and links on our website under the Investor tab and under Company News. Feel free to take a look at that, get more information about the TBI Project. With that, I'll turn it over to Ben Naccarato, our CFO.
Thanks, Mark. I'll begin with our revenue. Our total revenue from continuing operations for the third quarter was $11.8 million, compared with last year of $12.9 million. A decrease of $1.1 million or 9%. Our treatment segment revenue actually increased by $1.7 million or 22%, this was due to improved average pricing and also increased volume in the quarter. This increase, however, was offset by the revenue in our service segment of $2.9 million or 54%. Our service segment is project-based and can vary depending on the size and timing of projects. We had a delay in one of our key projects, which did not resume until late August, that, along with the completion of a commercial project we had in 2016, were the main reasons for this variance in revenue.
For the nine months ended September 30th, 2017, our total revenue was $37.2 million, which is relatively flat from last year's $37.8 million in the prior year. As with the quarter, our treatment segment revenue has exceeded prior year, while our service segment revenue has been comparatively down. Turning to our cost of goods sold, our total cost of sales were $10 million compared to $11.1 million in the prior year. Our treatment segment costs increased by $936,000. Of this, variable costs related to revenue were $481,000. Our fixed costs at the facilities were up $455,000, of which this is entirely attributable to an increase in our reserve recorded at our M&EC closure process. Our service segment costs were down $2 million, That is consistent with our lower revenue. On the gross profit line, for the quarter, we were at $1.7 million compared to $1.8 million in 2016.
Our treatment segment gross profit increased by $776,000, It does include the increased closure expense of $550, as discussed previously. Our volume increase and our revenue mix was the primary driver of this improved gross profit in the treatment segment. Service segment gross profit was down $838,000, This is entirely due to the decrease in revenue. Year to date, our gross profit has improved by $3.2 million, as both our volume and our average price in the treatment segment has contributed to $5.2 million of improvements in this segment, while the gross profit in the service segment has been down by $2 million due to the lower revenue. At the G&A line, our total G&A costs for the quarter were $2.7 million, which is flat from prior year.
We had lower labor and legal costs, These were offset by costs related to our annual user conference, which we did not have in 2016. For the nine months ended September of 2017, our G&A expense was $8.3 million compared to $8.2 million in prior year. This increase is due to the fact that 2016, we had a pickup in the second quarter of $360,000 related to a receivable, which had been previously written off, but was deemed collectible and brought back in. Our loss from our continuing operations for the quarter was $2 million, compared to a loss of $1.5 million last year. Again, included in this loss are the costs related to the closure reserve of $550,000 and the non-cash impairment costs of $672,000 at M&EC, where we wrote off the remainder of the assets at that plant.
Also included are $197,000 and $342,000 related to our medical isotope segment for Q3 2017 and 2016 respectively. Our loss applicable to common shareholders is $2 million, compared to last year's net loss of $1.6 in the quarter. Our total loss per share for the quarter is $0.17, compared to a loss per share of $0.13 in prior year. Our adjusted EBITDA from continuing operations for the quarter, as we define in this morning's press release, is $654,000 compared to $152,000 last year. For the nine months ended September 30th, 2017, our adjusted EBITDA was $2.1 million compared to an adjusted EBITDA loss of $1.3 million in the prior year. We've seen an improvement year-over-year on this metric of $3.4 million. Turning to some key balance sheet items as compared to year-end 2016.
Our cash balance has improved by $892,000 as a result of the closure bond transition we did in the second quarter. This allowed the company to free up $5.9 million of cash, which was used to secure alternative bonding and also pay down much of our long-term debt. Our unbilled receivables were up $1.6 million. This reflects timing of billing and is pretty much contractually determined. Our intangibles and other assets were down $6.5 million, $5.9 of which is related to the cancellation of the closure policy. The cash was formerly held as a restricted cash. It freed up the restricted cash, as I mentioned earlier. Our waste backlog was at $6.8 million, compared to $5.3 million at year-end, $4.6 million at this time last year. Our long-term liabilities are down $5 million as a result of the full payoff of our revolver.
The reclassification of certain closure expenses to current at the M&EC facility. Our current debt is at $1.2 million, which is consistent with year-end and prior year third quarter. Our total debt currently sits at $4.3 million. This is excluding debt issuance costs. This is all due to our primary lender with $4.3 million, all represented by a term loan balance and reflecting 0 balance in our revolver. Finally, I'll summarize our cash flow activity for the nine months. Our cash provided by continuing operations is $355,000. Our cash used by discontinued operations is $464,000. Our cash provided by investing activities was $5.7 million, of which $200,000 was CapEx spending.
Cash provided by investing activities for the discontinued operations is $52,000. Cash used for financing was $4.7 million, of which $914,000 was used to pay down our term loan, $3.8 million was used to pay off the entire revolver balance. With that, operator, 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'd 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, please, while we poll for questions. Our first question comes from Bill Nasgovitz with Heartland Advisors. Please proceed with your question.
Well, good morning, fellas.
Morning, Bill.
It's great to hear that you've put out 45 proposals and a 60% win rate, Mark. That sounds very encouraging. We've paid off the revolver. That's nice to see, too. What parts of the business are you most excited about going forward, Mark?
A couple of things, Bill. One, Canada is going very well for us. Canada is a wide-open market. It's got a lot less competition. Our core competencies align directly with the technical challenges they face, in Canada, particularly as they're just getting started with their cleanup program. We have very key contracts already in place. We have good relationships with the clients. We've got an office now up there, and it's growing very rapidly. That's really the focus on the services side as far as I'm excited about. On the treatment side, we're getting a lot of really good feedback from how we're offering our clients, as opposed to just receiving waste.
We're actually proposing with them to go in earlier in the process, help package the waste, help in the planning stages, to not only feed our plants but to provide more services in front of receipt of waste. That's going very well. We have a couple of big initiatives in 2018 that we're hopefully going to secure, that I'll be able to talk about in more detail. Those are the two things. The third thing would be, Bill, that we're adding some new capabilities at our plants, which we haven't done in a long time. These capabilities, as we mentioned in prior calls, will provide for a wider and larger market base for waste treatment. We were getting a little stagnant in years past with basically the capabilities we had.
Now we're going to be broadening those capabilities so we can take in different types of waste in addition to what we've already received before. Those are kind of the three things I'm most excited about.
Okay, thank you. I'll step back in the queue here.
Our next question comes from Anthony Marchese, a private investor. Please proceed with your question.
Hey, good morning, guys. Two questions. One, on your service segment, are you competing against the same people? Are you losing contracts due to price? I'm just trying to understand why the drop-off.
Well, Anthony, I appreciate your question. The services segment has kind of reached a trough over the last couple of years with Perma-Fix. We're building that back, and it takes a little bit of time to build it back because you have to reengage with your clients, build those relationships back that may have been around four or five years ago, find the key people that you need to do the work, build up your proposal capabilities so you can win these bids. To answer your question, there is a lot of competition. We generally are not necessarily losing on cost. We're very competitive on cost. When we get our debrief, we see that we're in the top couple for each bid.
I think once we secure more key people and we get a couple projects under our belt again, which we have right now, in other words, we have some references for ongoing projects, we'll be fine. We're doing some great work in California for Department of Energy. I was out there just this week on Monday. The client's very happy, so we have a really good reference there. Same with Canada. We're building those references back up, and our marketing campaigns are taking a little bit longer to really bear fruit than I thought it would a year ago. Again, as we mentioned, as Bill reiterated, the 45 bids we've got in, we haven't heard about all those yet. The 60% win rate is not necessarily directly lined at 45. It's basically, it takes months sometimes to hear on some of these bids.
As they start rolling in, we take a lot of time after every bid to understand why we lost and what we need to improve so we can do better on the next one.
All right. A final question. I know you don't give guidance. Is there a possibility that you'd be net income positive in the fourth quarter?
Well, yeah, I'll answer, Anthony. The biggest impact to that is the write-down at M&EC. Our bottom line has been impacted by the accelerated depreciation at the facility. This quarter, we had the triggering event of pretty much there won't be much more production, and therefore, we wrote down the remainder of the assets. You're going to see a pretty substantial, in the $600,000-$700,000 reduction just in D&A costs. I think it's going to get pretty close.
All right.
We're still minimizing our medical costs. Those are also sort of non-core costs that hit. Between those two items, I think you'll see significant improvement at the bottom line, yes.
Great. Thank you.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment please while we poll for questions. Our next question is from Joe Brown, a private investor. Please proceed with your question.
Yeah, I have a couple of questions. Well, first of all, let me ask you. You have these two projects that you're working on, the one with the government, the other one with the isotope. How are you doing as far as lining up people or potential investors in that isotope project?
It's Lou Centofanti. As you know, we broke off from our last discussions with a potential investor, and since then, we've really been going down two paths. One, with our limited resources, continue to work on the technology, and that continues to go well. Not much new I could say there. The second is really exploring other options. We've gone down multiple paths in terms of financing of the unit from everything from bringing more money in to licensing. We have several right now we're exploring, and can't say much about at the moment, but we're hoping that in the very near future, over the next several months, we'll be able to talk a lot more about what our path will be. At this point, we've made progress, but nothing that's where we can talk about it at the moment.
Hopefully in the next several months, we will be able to.
Yeah. I had a couple more questions. Well, one of them pertained to, you mentioned in this conference that you had other people putting and using their products in your facilities. Can you explain that a little more, and what's the potential profit on something like that? It sounds a little strange, go ahead.
Well, that's a great question, Joe, this is one of the things I'm most excited about that we're doing right now that has very strong near-term positive impact. Just to answer your question, we have these soon to be three facilities that have very significant barrier to entry for companies that have technology. In other words, it is very difficult to license these types of facilities. We have extra space in several of the facilities. In this extra space, what we're doing is we're working with companies out there that don't have these kind of facilities but do have cutting-edge technologies that they have patents on that specifically address some of our clients' waste needs. In other words, very focused types of needs for reactive waste and those types of things that, frankly, there's not a lot of competition out there about.
Basically what we're doing is we're working with those companies to launch their technologies in our licensed space. We will operate them, we will manage them, we'll market them, but we'll work with them in an operating agreement type of basis so that we can expand our capabilities, use our facilities and our trained operators, and our market base or our client base, people we already have relationships with, to be able to broaden our offering in the marketplace. We're doing that in two different initiatives going on in parallel right now. Those are the kinds of things that can result in very fast and significant impacts to the future revenue.
Are these companies? Do they have clients already, or they just have a product?
They have clients may not be for that specific technology, but they're in our business space, they're in our industry.
Are they competitors?
Everybody in our industry can be a competitor. They join different teams and those types of things, but not direct competitors, no.
Okay. What's the potential revenue out of something like that? Have you realized any profit or revenue from that? Or what do you expect?
No. We're in the final stages of planning and our agreements at this point. We hope to have something sometime next year when we'll talk about that more once we get the agreement signed and start moving forward.
Okay. Another question I had was, I think at the last conference, you had said that you were hiring people. You had said this maybe last quarter or two quarters ago. You said you were hiring people because you were optimistic. Today, you said that your labor costs are down. I'm trying to understand, has your headcount gone up or what's your latest headcount and how much has it changed?
It hasn't changed dramatically, Joe. It moves around a little bit here and there. What Ben was saying in regards to our services segment is that as we do new additional projects, we have increased labor costs because we're hiring either actual labors like laborers and operators, and that obviously increases your cost of goods sold. That has gone down because we don't carry those folks, whether they're union or non-union, wherever they are, we don't carry those folks if we don't have projects. That will show you a labor cost that has gone down. On professional labor, on key staff, on project managers, and specifically, as I mentioned the last call, we've hired a number of certified health physicists, which are very hard to find, and that's kind of building our practice for the rad protection side of the house.
We've hired a number of those each quarter, that continues to grow. What that does is it brings to us, when you hire a CHP, it brings to you new client potentials, people they worked with in the past, those kinds of things. We are continuing to increase our professional staff, but we have seen some dips along the way in our overall labor hour numbers because of the gaps in projects.
In other words, you've decreased less technically qualified people, lower level people. Is that what you're saying?
Yeah. I mean labor, like real labor, like laborers and operators in the field types of things.
Joe, I'll just add, the comment about reduced labor was at the G&A and overhead line. If you remember, we're comparing with last year, we had a severance cost last year from a termination that obviously raises costs when you're comparing.
Okay.
It's G&A that's down for a variety of reasons.
Okay. The other thing I was curious about is, you said you were going to be pretty close to making some money this quarter, maybe free cash flow positive. I don't know. Assuming that you start to make money, maybe in the first quarter of next year when some of these plant closure costs have gone away and you realize the benefit of closing one of your facilities. Assuming that you start making money in the next quarter or in the first quarter of next year, what would you do with that money? You have a debt of, you said long-term debt of like $4 million-$4.3 million, something like that. When you start to make money, what would be your priority?
Would you want to build up your cash hoard, or would you want to pay down more debt, or would you put the money into a couple of these projects that you're working on? You know what I mean?
Yeah. I'll start, and then Mark can talk more about spending side.
Your priorities.
Our debt is very reasonable right now. It's got about four years left on it at about $100,000 a month. It wouldn't make a lot of sense to use up all your cash to pay it down. We've got a long-term relationship with our lender. As we become more cash positive, we have a number of initiatives, that Mark can certainly address, that we would want to invest into generating more revenue and more profits.
Yeah.
Yeah.
Some of the initiatives we have would include some new equipment, even some new buildings. Some of it would go towards that as well.
Okay. The debt would remain the same. All right. I guess one more question I had is, there's been a long process of trying to turn this company around. Dr. Lou has been very positive quarter after quarter, but none of it ever really materialized. What I'm thinking about here is that if your company starts to make money and starts to look attractive, you have such a low valuation, and you have a high float of stock out there. If somebody wanted to, if they became interested in. It seemed to me that your share price is so low, your company's worth, what, about $40 million. Somebody could take it over for a very low investment. They could take over your company if they wanted to, and yet there's a lot of float out there.
I'm just wondering, is there any safeguards that you have against somebody coming in and bidding, I don't know, $5 a share or something to take it over? Is there any safeguards? You know what I mean?
Yeah. The company has a rights plan which would help the board protect against a lowball offer.
Okay.
That's been in place for a number of years. There is that protection mechanism, and at the low valuation, we hope that as the profitability starts to kick in, we'll see what we consider a pretty undervalued stock start to.
Yeah. It's horribly undervalued. I think the stock is down. If I look back over the last eight years, I think you're down like 95%. You did this five for one reverse split. It's incredible what your company's worth today versus what it was worth even five or eight years ago.
Yeah. To your last question, I guess another option if we have excess cash would be buying back stock.
Okay. All right. That's all my questions. Thank you.
Our next question is from Bill Nasgovitz of Heartland Advisors. Please proceed with your question.
Yes, one more here on this plant. We took another $1.2 million write down. Are we done taking write downs on this plant, or is there more to go?
Well, as of our best estimates, Bill, we should be done. We have to estimate, we're within three months, we're getting closer to. The big unknown is always with these types of closures is what your final disposal expense will be, and that was pretty much the gist of the latest increase, which was the $550. The $672 was really just writing off the assets. That's done. As you know, we hope we've got the right estimate on the closure. We think we're pretty close now to knowing what that number will be. We don't think there'll be anything so material. It may adjust either way.
Okay. This plant will, you indicated in the release here, $4 million in annual expenses, but I believe you said earlier $4 million-$5 million. That's a significant amount of money. That will start to kick in then in Q1, or won't be expensed in Q1?
Yes. Some will kick in in four because of that four to five, there is depreciation in that. Depreciation was running around $200,000-$225,000 a month. That about two and a half to three of the numbers—
Okay. I guess I'll rephrase my question. Let's just take the $4 million. Will that be realized over the course of 2018?
Yes.
Okay. That's a significant number, isn't it?
Yeah.
The company doesn't publish backlog. Mark, are you at all considering in the future to give shareholders some idea of the direction of this company publishing backlog?
We don't publish backlog now, but we did talk about waste backlog. As far as funded backlog, it is something we're starting to focus on a little bit more. As far as publishing that, Ben, I don't know if you have a perspective on that, but it hasn't been that good in the services segment. It's difficult, Bill, because it's difficult to nail down when you're going to actually receive your waste. Contracts come in quickly. We work with our clients and they say, "Hey, we got $3 million worth of waste to ship you." Then sometimes it comes the next day, and sometimes it comes a year later. It's easy to sign a contract right before it comes. Funded backlog is difficult in a traditional sense, like a services segment where you have a contract signed and you know you're doing this work.
It's a little different on the waste side, so it's not quite as strong of an indicator as some other industries. Ben, do you have a perspective?
Yeah. I think the backlog we do publish, of course, is our waste. That's really more unearned. That's when we have the waste in hand, and we can control the revenue from it. The lack of the large service projects where three years where we know we're going to see X amount of revenue on a quarterly basis, that's really what has kept us from publishing that. Once it becomes a material metric that will help the investors understand what's happening, I think it certainly is fair game to publish.
Okay. Mark, you must have an internal pipeline or some measure of, I guess, the bidding process.
We do, Bill. We do on our services segment particularly, and we have very well-managed spreadsheets on the waste as well, where we're projecting three to six months ahead at any given time based on marketing and sales that we're chasing. We adjust win probability and those kinds of things to try to better project what our backlog's going to be on receipts.
Mm-hmm. Okay. Thank you.
Our next question is from Chuck Dickinson, a private investor. Please proceed with your question.
Yeah. Hi, good morning here. I see that the impairment loss on the tangible assets is obviously a non-cash charge. That was $672,000 in the latest quarter. Also, the closure cost that hit the cost of goods sold for the accrual for the M&EC unit of $550,000. Was that also a non-cash charge?
Well, in the current period, yes. It's increasing a reserve for future.
Okay.
We will ultimately, when we close that facility, that will become cash expense.
How does that get expensed over time, or is that a one-time cash cost when you do expense it? How does that work?
Well, as we ship waste. As the facility goes to closure in the next three to four months, we will have to get rid of waste off the site, vendors will charge us, then we'll pay that out accordingly. It won't be one time $550. It'll probably be in $50,000 to $100,000 increments per month.
Right. Okay. A previous caller had said, hopefully, next quarter you're getting close to maybe you'll be cash flow positive. Unless I'm reading this incorrectly, in the current quarter, you already are cash flow positive on the adjusted EBITDA basis. I mean, there's no getting to cash flow positive. You're basically already there.
Yeah. That's correct. Keep in mind, that reserve for this disposal number is about $3 million, of which around two is still disposal. You will see a quarter when we have to spend that money to get it out the door. You're right, our EBITDA number is up to about $2.1. Our adjusted EBITDA number is about $2.1, and that loosely represents positive cash. For the year, we were $355 from continuing, and that's an improvement of near $1 million for the third quarter. Yes, we are seeing positive cash. The cash flow is improving in the company.
Right. Going forward, the $4 million-$5 million of cost savings you're projecting on an annual basis from the closure of that M&EC facility, how much of that, roughly, of the $4 million-$5 million will be related to depreciation, which is non-cash expense anyway. It really doesn't improve the cash flow. How much of a cash savings is there in that $4 million-$5 million that you would realize annually?
About two and a half to three would be the traditional depreciation number for the annualized. You're talking about approximately $2 million of improvement in cash.
Right. Okay. I don't really care. I do care about net income, I'm much more focused on the cash flow situation and sustainable cash flow situation. It sounds like that'll be a pretty good pop on an ongoing basis to the cash flow numbers and sort of provide, hopefully, some margin of safety going forward. Last question I really had is looking at the current ratio. It's a little bit under one. It's not significant. For all intents, it's about 1.0 roughly. Do you have any concerns there, or is the cash flow enough that you see going forward in addition to what you have in your current assets? It's not just current assets or current liability. As you go forward next quarter and going forward, hopefully, you'll also be generating some positive cash flow.
I assume there's nothing on the current liability side that gives you any cause for concern, and your revolver is totally paid down, and you've paid down much of the term loan, so there should be a fair amount of flexibility there. Really that becomes something not to worry about, I assume, on the current ratio.
That's correct. It's entirely impacted by the disposal reserve we discussed. We do have availability, the revolver is clean, and we actually have a little extra availability that the bank is kind of holding that we're going to discuss with them as well. No, I don't have a lot of concerns about the liquidity side of getting through this process. Then that would take X out the facility closure, then we'd be in a pretty good position from a working capital standpoint.
Right. I guess one more thing. On the political side of all this, there was mention made that one of the difficulties has been the lack of personnel being put in place in the current administration that kind of bogs things down a little bit as you try to get some of the government funding flowing. Are you seeing any movement in that? Is there any optimism in that? I mean, do we have to really wait for a change in administrations and a Congress that works in conjunction with the executive office, and the right Secretary of DOE to get things going.
Again, the bottom line question is, has there been an improvement in the problem that's been there of not having appropriate personnel in place to make your job easier when you go to the government with projects, and basically there may not be anybody there to sign off on something?
Chuck, we did mention that last quarter. I think that we have seen an improvement, which is reflected in some of the movements with the TBI project. I think there's been a couple of confirmations in the last two weeks at senior levels. I'd have to say, to answer your question, yes, we have seen an improvement, and I'll also say that I think our business is less dependent on it, where we're going from here.
That's great. On the TBI project, you may or may not be able to answer this. I know you're in a very sensitive situation on that. There was something in that Tri-City Herald article that had mentioned that were this thing to go forward, there might be a situation where the permitting of Perma-Fix would have to be adjusted or updated or amended or something. Can you talk about that at all or no? I guess what I'm getting at there, it would be open to public comment or something, is that something that would be a significant hurdle, nothing of significance to worry about?
If you can't talk about it with regard to that specific project, maybe perhaps you had a permitting situation in the past with some other project where you had to go and get the permit updated or changed or amended. Not knowing anything about that process, I was just curious if that becomes an impediment or something that's just kind of a statutory thing that you have to do.
Chuck, again, I wish I could answer that for you. We might be able to by next quarter, right at this point, we can't address anything associated with TBI.
Okay. Thank you very much. That's all I have.
Thanks, Chuck.
Our next question is from Bill Nasgovitz with Heartland Advisors. Please proceed with your question.
You mentioned, Mark, perhaps spending some money on facilities. Any idea in terms of CapEx this year and what your estimate of CapEx is for next year, and then also R&D this year and what you might spend on R&D next year?
I'll let Ben talk about. Right now, we don't have any CapEx. Do we actually spend it in this quarter, Ben, or can we say?
It's pretty minimal, Bill.
For the year?
Yeah. For the year, we're at $200,000 for three months, and we might get to half a million by end of the year. It's more facility repairs and sustenance type capital.
I guess I'm more interested in next year.
Yeah. Next year, we manage our capital pretty tight. As you know from historic, we've never had We'll typically budget about $1 million, $1.2 million for sort of ongoing operations.
Okay.
Anything real significant would probably be borrowed. It'd be leveraged.
How about R&D?
On the R&D front, Bill, we do have a couple exciting things going on. We've received basically some grant money, we've applied for a number of other types of grant money to do R&D for some very specific hazardous materials out there that the Air Force is dealing with, associated specifically with firefighting foam at airbases. We're doing some R&D there. It's reimbursable R&D that we're very excited about because we're in the absolute cutting edge of that. If we can put together a verifiable treatment approach, we'll be in a great position to actually treat this waste, probably either in situ or in our facilities. I would probably say, Ben, notwithstanding medical, I'm not going to address medical, but as far as non-medical R&D, we're probably in the several hundred thousand range for actual treatment technologies. Would you disagree with that, Ben?
Yeah. For nine months, we're at about $338,000, last year was $321,000. We run a little bit under $100,000 or $100,000-ish a quarter.
Okay, you're not anticipating a big increase in R&D for 2018?
No. The biggest chunk of the line you see on the income statement, Bill, is because we consolidate medical.
All right. Thank you.
of course, comes down.
Our next question is from Steven Fine, a private investor. Please proceed with your question.
Good morning, gentlemen.
Morning.
On the medical thing, if you find an investor, what I've been looking at your metrics, $1 million would go away, presuming you found someone to take hold of that. That would obviously be significant. I think that should be taken into account. Secondly, I've been an investor for about three quarters. I've heard that this is my third earnings meeting. The tenor of this meeting, the extent of this meeting excites me. I commend you all. I think there's tremendous opportunity and possibilities. Having a background with government and with hazardous stuff
I commend you. I commend you to go out there and to make a company work, but there's also a moral imperative, and you're doing something for society. I know, as one gentleman brought up, the issue with Hanford can't be discussed, but I have followed The Sentinel every night. The thing that I see is the courageousness of the Department of Energy, how they are looking at this from a pragmatic standpoint, how they're saying two-thirds of the expenditures that go out there are for infrastructure and not for waste. That in itself, having a government who is looking in that way, I think is very exciting. Again, I thank you as a stockholder, and I'm extremely excited.
Well, we appreciate your input and your thoughts, Steve. Appreciate that a lot. It means a lot to us.
Ladies and gentlemen, we've reached the end of the question and answer session. At this time, I'd like to turn the call back to Mark Duff for closing comments.
Okay, thank you. I'd like to thank everyone for participating in our third quarter conference call. As I mentioned earlier, we've achieved another quarter of positive adjusted EBITDA. In fact, our adjusted EBITDA increased more than fourfold from the same period last year. Within our treatment segment, we've increased 22%, which was offset by a temporary decline in the services segment, as we mentioned. We are fully confident that we'll replace this lost revenue and return to growth in our services segment very soon. Heading into fourth quarter and then into 2018, we anticipate continued growth in revenue and improved profitability. For the fourth quarter, we expect continued growth, and as I said, better net income than the third quarter. An increasing net income over the third quarter due to the M&EC impairments within the EBITDA that we've reported.
We're anticipating about $3 million in EBITDA for the year-end as well. We appreciate everyone's continued support and look forward to providing additional updates in the near future. Thank you.
This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.