Greetings, welcome to the Perma-Fix Environmental Services Inc. Third Quarter 2016 Investor Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natalya Rudman of Crescendo Communications. Thank you. You may begin.
Thank you, Christine. Good morning, everyone, welcome to Perma-Fix Environmental Services Third Quarter 2016 Conference Call. On the call with us this morning is Dr. Lou Centofanti, Chief Executive Officer, Ben Naccarato, Chief Financial Officer, and Mark Duff, Chief Operating Officer and Executive Vice President. The company issued a press release this morning containing third quarter 2016 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
All statements on this conference call are then the 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 within the U.S. Securities and Exchange Commission. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events, or circumstances after the date hereof that bear upon forward-looking statements. With that out of the way, I'd like to now turn the call over to Dr. Lou Centofanti. Please go ahead, Lou.
Thank you, Natalya, welcome everyone. First, I'd like to say we've been very disappointed with what has happened to our ongoing business, both in the quarter and the year. Looking back, at the start of the year, we had orders that indicated we were in store for a very good year. What we have seen, though, has been a large number of shipments that were delayed and unanticipated spending constraints at the federal level. This was not unique to us, as it affected all our peers in this industry as well. Even though budgets were not reduced, work programs were put on hold until after the election. Because of this, it's been a very trying quarter and year. Again, we had to go back to our lender for waivers, which were approved, but it has delayed our financial reporting.
As we look ahead, we believe we've gotten through most of the unanticipated macro events and are optimistic about the outlook for the new year. We have begun to see waste that was delayed begin to ship and expect to see improvements in the fourth quarter. As a result, our currently anticipated adjusted EBITDA for the fourth quarter of 2016 will be approximately $1 million. As we look ahead, again, we continue to be very good reason to be excited. First and foremost, the project that I get the most questions about is, I returned last night from spending a week at Hanford. Pleased to report we are near completion of the previously announced demonstration project related to the treatment of high-level waste. Again, expect that to be totally completed by the end of the year.
This would represent our first foray in the high-level waste treatment, I can't emphasize enough the revenue potential from this project, which could eclipse anything we've done in the past. We are on track to complete the initial demonstration, as I said, in the coming weeks, look forward to providing additional updates in the near future. In addition to the sheer magnitude of the opportunity, our customer is motivated. Not only are we able to provide the customer a practical path forward to treat this waste, but the cost savings from our process versus any other alternatives are staggering. I would add, one comment is that we are breaking a lot of new ground. There are a variety, because this is a whole new approach, there are a variety of institutional barriers that we must continue to overcome for this project.
We're very optimistic and think we can. Turning to the service segment, we experienced some weakness as contracts ended. New projects have begun, and we're rapidly building our sales pipeline, especially due to the large part to the tremendous efforts of Mark Duff, who recently joined as Executive VP. In fact, I'd like now to turn the call over to Mark, who will provide some further insight into where we are in our business development efforts. Mark?
Great. Thanks, Lou. Perma-Fix does remain optimistic regarding growth over the next several quarters due to several changes in near-term objectives of our clients, as well as reorganization overall of our business development programs. There's an immediate trend in the government sector that we've seen over the past few weeks that include the need to increase the movement of waste that remained in storage over the past year to address their objectives, which focus on labor stability as a direct result of the upcoming election. Our government clients are now shifting focus to spending on non-labor objectives, including waste disposition of those stored waste that will directly impact our treatment facilities. Over the next six months, this includes the potential for increased inventories and processing. We're starting to see that shake up just in the past few days, actually.
In our nuclear services sector, we've seen a rapid increase in procurement opportunities, both in the government and the commercial sectors, as a direct result of some of the changes we've made in the enhancement of our business development program. We've seen growth opportunities through ongoing procurements in remediation, radiation protection consulting, and teaming opportunities with larger firms that have not previously recognized the Perma-Fix discriminators, and what we actually bring to teaming for some of the larger projects that have come up in the government sector. While these procurements can often take several quarters to recognize wins and the associate revenue, we've seen several immediate new opportunities from sole sourcing in both services and waste treatment that will impact our revenue in the next two quarters, which will likely drive us to meet or exceed our plan. That's kind of a summary.
Lou, I'll turn it back to you.
Thank you, Mark. As our initiatives within both services and treatment begin to take hold, we continue to look at all aspects of our business to identify areas of cost savings. Previously announced, we are moving forward with the closure of our M&EC facility in Oak Ridge, Tennessee. We're relocating certain equipment, shifting certain specialized capabilities to our other facilities, which will allow us to easily reroute waste streams with minimal impact to revenue or disruption to our customers. This closure, we estimate, will save us $2 million-$3 million annually in fixed costs, and should help significantly in our bottom line.
Turning to our medical subsidiary, very pleased to report we've entered into a, as you know, letter of intent with a private investor, subject to execution of a definitive agreement, to purchase $10 million of preferred shares in Perma-Fix Medical, with an option to invest an additional $10 million through the exercise of warrants. We believe this investment will provide us the necessary financing to execute our strategy through commercialization of the Tc-99m technology. The fact that the transaction will be nearly at twice the current share price of our subsidiary on the Warsaw Exchange further illustrates the confidence this investor has in the technology. This cash infusion will help us significantly accelerate activities leading up to and beyond submission of regulatory filings.
The cash infusion, combined with the new management team consisting of Steve Belcher and John Climaco, will allow senior management of Environmental to now focus 100% of our time and energy on the nuclear waste business. As part of medical, as you've also seen, we were pleased to see that we were issued another patent for the Eurasia market, which could represent an attractive market for our technology. To wrap it up, this has been a very difficult year for the reasons mentioned earlier. They're unanticipated and an industry-wide phenomenon. Nevertheless, strongly believe we're back on track. With Mark on board, we see a significant opportunity in the services segment and in overall our low-level mixed waste business. We are on the cusp of completing a demonstration project to treat a small quantity of high-level radioactive waste.
This would be a monumental achievement, not only for Perma-Fix, for the industry as a whole, since it provides a viable cost-forward path for the streams we're focused on. With that, I'd like to now turn the call over to Ben, who'll go into more detail on the numbers. I'll be back, myself and Mark and Ben will be back to answer questions at the conclusion of the formal remarks. Ben?
Thanks, Lou. Starting with revenue, our total revenue from continuing operations for the third quarter was $12.9 million compared to last year's third quarter of $17.3 million, a decrease of $4.4 million or 25.4%. The decrease was a result of revenue shortfalls in both our operating segments. Our services segment was down 18.1% as a result of timing of the ongoing projects during the quarter. The larger shortfall came from the treatment segment, where revenue was down 29.7%. As Lou mentioned earlier, we continued to see delays in waste shipments, primarily from our government customers. Turning to cost of goods sold, our cost of sales was $11.1 million for the third quarter compared to $12.4 million in the prior year, a reduction of $1.2 million or 10.1%.
In the treatment segment, cost of sales were down $364,000, primarily from the reduction in variable expenses from the lower revenue, offset slightly by a small increase in our fixed facility expenses of $98,000. Cost of sales from our services segment were down $885,000, with the variable expenses relating to the lower revenue of $811,000, also lower fixed expenses of $74,000. At the gross profit line, the quarter was $1.8 million compared to $4.9 million in 2015. This $3.1 million reduction was essentially volume related, with lower revenue accounting for $3 million and a small revenue mix of about $100,000. The SG&A for the quarter was $2.7 million compared to $2.9 million last year, a decrease of approximately $200,000. Lower marketing and property-related costs were the main drivers of this decrease.
Our loss from continuing operations for the quarter before taxes was $1.5 million compared to income of $1.3 million last year. Net loss attributable to common shareholders was $1.6 million compared to last year's net income of $1.1. Our total loss per share for the quarter was $0.13 compared to income per share of $0.09 in prior year. Our adjusted EBITDA from continuing operations, as defined in this morning's press release, was $152,000 compared to $2.9 million last year. Turning to the balance sheet, our cash was down $1.4 million, primarily from the losses incurred during the fiscal year. Our unbilled receivables were down $1.8 million, primarily from the reduced incoming waste during the quarter and the year. Our other receivables were down $1 million from amortization of prepaid expenses and the write-off of certain other prepaid expenses related to our M&EC facility.
Our impairment of the M&EC tangible and intangible assets explains the drop in the property and equipment and the intangible categories. Waste backlog for the quarter ended at $4.6 million compared to $4.7 million at year-end, and $5 million in September of 2015. Our current debt, excluding issuance costs, was $1.2 million, down $1.3 million from year-end and lower than prior year third quarter by $2.5 million. Our total debt, again excluding debt issuance costs, at the quarter end was $10.8 million and was entirely due to our lender, PNC Bank. Finally, I'll summarize our year-to-date cash flow activity for the quarter. Our cash used by continuing operations was $1.3 million. Our cash used by discontinued operations, $710,000. Cash used for investing was $150,000, of which $104,000 was capital spending.
Our cash provided by investing activities by our discontinued operations was $46,000, and our cash provided for financing was $838,000. With that, operator, I'll now turn the call over to questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. Thank you. Our first question comes from the line of Sam Hrabowski with SAR Asset Management. Please proceed with your question.
Yeah. Good morning, Lou, Ben, and Mark.
Yes, sir.
I guess like all the other shareholders, we're disappointed about the results. Let's hope we're going to do something good in the future. As far as the medical, the 48.6%, is that with the $10 million preferred? What would the dilution be if there's $20 million of preferred?
If there's $20 million, the investor could own up to 62%.
62%. It's their option, not our option.
Correct.
Yeah. Its 48.6 would be at $10 million.
Okay. That dilutes the value of this investment pretty significantly, I guess because we haven't found somebody to put in money cheaper, or what is the rationale? We expected a higher valuation, I thought.
As we looked around in terms of where this technology is at this stage, this was a pretty good deal we found in terms of what we could do. With the exercise, we'll end up with about 30% in the first stage, and after the first and a little over 31%, and after totally complete, if all warrants are exercised, about almost 25%. It is dilution, and it is a significant dilution. The company will also have over $20 million in cash to work with.
Is this a higher valuation than what Digirad paid, or is this a lower valuation?
It's a lower valuation than Digirad paid.
Okay.
It's higher than the present market value, almost twice the value of the present market value, but lower than Digirad.
Okay. As far as closing of Oak Ridge, is there any other costs that have to be charged for the closing? Any additional plus?
Most of the significant costs have been taken. It doesn't categorize as discontinued operations because it is nuclear, therefore, the ongoing facility costs are going to have to be absorbed, and they'll slowly slow down. If they're closure related, they've been accrued for, there are certain costs like utilities and just keeping. There is some waste still being processed there. You'll see a reduction. The $2 million plus is going to scale up. As we go forward, you'll see more of that, ultimately, that's sort of a run rate at the end of the process.
The way to look at it, Sam, though, is that at least over the next probably five, six months, there'll be still operations there going on, at the same time, we'll be closing. We're trying to do it in a very rational way to minimize the impact, both on the technology customers and the bottom line.
We did take the entire write-off of the intangible asset. That was the biggest hit. Most of the fixed assets have been re-lifed, they will depreciate out at the end of this process. That's why we're actually seeing a little bit higher depreciation expense from that re-adjustment.
Okay. The write-down from $42 to $33, December to September, there's no additional write-downs. You speak of a $16 million fourth quarter. That's enough to break even or make a profit?
At the adjusted EBITDA line?
I mean, can you make a profit with $16 million in the fourth quarter? I mean,
Well, we've projected a fourth quarter of about $1 million of adjusted EBITDA. That kicks out medical and discontinued ops and some of the anomalies.
As far as GAAP basis of profit, or is this before taxes? Is that?
No. If you ignored the write-downs from M&EC, but with those numbers in the books for the year, of course, there will be a loss this year.
For the year. No, but in the fourth quarter, we'll be profitable?
Well, our numbers right now, we're consolidating medical.
Okay.
We have those to assume and certain discontinued operations.
That's why we really tried to focus the investors' attention on the adjusted EBITDA, because that's the number that kind of gives you a focus on the cash flow of the current operations.
What is the medical, say, in the fourth quarter? What is for the first nine months medical?
Let me just tell you that in a minute. For nine months, we've spent about $1,100,000.
$1,100,000. Is it fair, another $300,000 in the fourth quarter?
Probably a little less.
Less, okay.
Until the deal is done, we've kind of.
Okay
battened the hatches a little over there.
Okay. There's one thing that I noticed in the last day or so, EnergySolutions and Valhi contests DOJ's effort to block Waste Control Specialists acquisition. Are you getting competition in this area from EnergySolutions? Is this acquisition good or bad for Perma-Fix? Is EnergySolutions and you and everybody else, is there less money being spent, or how does this shake out?
Well, we were very interested in the merger of the two, and have, I guess you might say, mixed feelings. WCS is a partner on several projects with us. I think one, from a business point of view, you've seen both of those also badly hurt by what we saw in the industry. The merger itself, we're just watching it and seeing what happens. I hate to say we're negative or positive, where there's some pluses and there's some minuses for us.
What size is WCS to the extent they were partnered with you? Presumably, they would no longer be a partner with you, they would be-
We've got very strong contracts with them that EnergySolutions has already said they would honor. At this point, it will be very good for whoever owned them, those contracts, including the one on high-level waste. The one on high-level waste, our partner is WCS.
You could gain more business going forward if this deal goes through?
The competition between us and EnergySolutions is not that great. They like large volumes of waste. We compete once in a while, and we're partners once in a while. Again, it's hard to say what the effects of the merger would be. The Justice Department has now brought a lawsuit to stop it, and we'll see how it all ends up.
Is it your take, the valuation that EnergySolutions is putting on Waste Control Specialists, a higher valuation in the marketplace than Perma-Fix without medical?
No, they put a very high value. They're paying a very heavy price for WCS. In fact, that was one of the questions, why are they paying such a high price for a company with very low revenue?
We have probably more revenue than WCS.
What does this do for Perma-Fix to finding somebody that's willing to pay a price comparable to what EnergySolutions is paying for Perma-Fix? Are we looking for something like that?
Well, as a public company, we're always looking for something like that. With the two joining, it would be interesting for the industry. Without them joining, it will be probably even more interesting for the industry. It will open up a variety of other opportunities for the industry if they don't merge.
Well, I guess Yeah. At this point in time, Lou, I'd like to see a higher valuation for Perma-Fix. Good luck. Hopefully, we could see something soon.
Thank you, Sam. Yep.
Our next question comes from the line of Anthony Marchese, a private investor. Please proceed with your question.
Hey there. Good morning, guys. First, I want to congratulate you on your patience when people monopolize the conversation. In any case, I have two questions for you. One, could you just go a little further I mean, you've explained the quarter, so that's history. Could we go a little further into your low quantity but high level waste opportunity? You mentioned earlier very cryptically that you still have to work through some issues or potential issues. Could you just take us through a timeline? Okay, you finish in the fourth quarter. What happens next? What are the hurdles? If you can explain that, I mean,
Yeah
say that without breaking.
I'd like to describe this as we're breaking a lot of new ground here. We're treating high-level waste, and when finished, we'll actually dispose of it. You already heard earlier, our partner is WCS, so that somewhat explains where it's going, is every step of the way is we're being extremely careful and because we are breaking a lot of new ground and making sure that everything is perfect, and that we've crossed all our T's and dotted our I's. We are accepting, it's less than five gallons as a demonstration project, and we have just given, we went through the analysis over the last two, three weeks. Perma-Fix has now approved the waste coming to our facility.
The next step is the customer now has to sign the shipping document that they agree with us, which is usually a very perfunctory operation, but because of the visibility of this project, they will carefully do the same as we've done. Our hope is within a week, we will receive the material and then go through a process over the next two weeks of treating it, which normally would take less than a day. At that stage, it will go for disposal. After it's been verified by an outside firm that it meets all the standards, and again, the paperwork is really the big issue here on every step. The technology is, at this stage, from our point of view, to treat it is a no-brainer, but the paperwork is more what we're doing.
When we complete that, the next stage will be we're focused on trying to then treat a much larger volume, which would be, say, approximately 2,000 gallons, which would then occur sometime in 2017. We're presently looking at the barriers, the issues to go to the next step. Again, it won't be a tremendous moneymaker for us, but it would be a further step in the process. As we look at this solves some dramatic problems for the client. We're treating material that is a major headache, is a problem for their vitrification process they'd like to do, and we in a sense make it very easy then the material that we don't treat, let's say we do get larger volumes, that whatever's left can be then easily vitrified because we've treated the material that is a problem for vitrification.
As you know, at Hanford, there's 55 million gallons, and we figure that a large significant amount of that would fit into our system. The remainder would then go to the vitrifier.
This is potentially a billion-dollar opportunity for you guys long term?
More than that.
Okay.
Yeah,
No, it's all fine. I understand. It's a long-term opportunity. Final question. I appreciate the timeline. Final question. Every conference call I've been on in the last two weeks, people ask, I guess I'll ask, How will the change of administration impact the various parts of your business? I assume that high level waste is something that any administration would want to see removed.
Right.
This is not like carbon capture.
No, this is not like carbon capture. This offers a new incoming administration a very dramatic savings, with a very simple technology. The overall, I'd probably answer like everybody does, is that I've said over the years when people ask me with the administrations, does the Republican or Democrat help you? The answer has been, we're dealing with regulations that are in place. My old story is being an old Democrat. Democrats like to create new programs and start on new things and don't do a good job at running existing operations. Republicans do a great job of running existing operations and try to solve the problems we've got. As we sit today, we don't think we're going to see a big impact. It's not real clear until they start appointing people, and then those people define just what is going to happen.
DOE, other than carbon capture and the role of alternate energies and everything have been talked about, but the nuclear cleanup is you're dealing with existing regulations and problems.
Just to add to that.
All right.
I think the real impact really is Continuing Resolution and getting out of the Continuing Resolution cycle, which really slows down funding streams for the government. If they could pass budgets, particularly December 9th, and can get out of the CR processes, that's really what holds up our industry moving forward on a waste stream receipts basis.
The advantage there is right now, they'll continue the Continuing Resolutions till March, but having two Houses and a President, all of the same party should mean we end up with a budget.
That's right. That's where the real hope is.
Yeah. It's kind of hard to plan with continuing resolutions.
Right. Thank you very much. Appreciate your explicit answers.
Yeah.
As a reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from the line of Doug Dire with Wolverine Trading. Please proceed with your question.
Hi, good morning, gentlemen. It looks like at the Savannah River Site, there's a company called Parsons that is processing the waste there. I was wondering if they are competing with us with their process at Hanford.
No. They presently have a contract there that, in fact, will expire here shortly. They're doing it on-site, and there are problems at the site with the processing. We're very focused on that and watching what they're doing more from a technical point of view. It's quite a different system there where they're doing it on-site. They're allowed to keep it on-site and dispose of it on-site.
The salt waste, right?
Yeah, on what they call salt waste operations. We're very interested in what's happening there and also interested in the rebid.
It is a different waste stream overall.
Yeah. It's a much different waste stream with actually more-
They're not competing with us, though, correct?
No, they're not competing with us. No.
Okay. Then getting to the timeline with regard to the demonstrations, you talked about 2,000 gallons in 2017. Can you give us a little bit more guidance as to what part of the year that would fall in? Is the current timeline within the expectations that you originally had?
Yeah. The timeline, as we've always expected, that we would aim for the 2,000 gallons in 2017. From our side, we could probably accept it tomorrow. The big issue is more on the government side in terms of them focus on it and to recover 2,000 gallons from the tank and what effort it would take and how they would get it. The problems at this point with the next step really sit with the client in terms of how they could recover it. I probably have talked about that we have a fixed price on this project with ourselves and our one major partner. It's about $100 a gallon. It won't be a lot of money for us.
That part of the project will run about $5 million, it's, again, mostly because of the paperwork and the carefulness of the project.
Okay, great. Just one quick one from Mark before I go. Mark, you said that there would be some type of budgeting differences that will be coming up here and be resolved in December, possibly to kind of free up, get past-
Yeah
the continuing resolution.
Yeah. Continuing with the CR really stifles government spending in regards to new projects, which we're not allowed to get rolling, as well as there's a monthly ceiling on spending that sites are faced with. That coupled with trying to keep labor within each of the major sites level, through the election year, has resulted in storing a lot of waste at each site. As Lou mentioned early in his discussions or his talking point, all of our competitors have felt the same pain, where we're not seeing waste movement at all. The sooner our budget gets passed, the sooner new projects can get moving, the sooner they can start moving waste out of storage, and transport, and treatment, and disposal. It does have an impact on us. Most of the impact is just delays.
It doesn't necessarily change our revenue, overall on an annual basis, but it does delay it. We've seen a lot of delays just associated with planning for a CR, and hopefully an eventual budget as soon as possible. I was believed December 9th was the first target for a CR to be left or a budget to be passed. Does that sound right? Okay, said to March.
March. Yeah. Right now, the Congress is focused on continuing till March.
Okay.
We'll give the chance for the new Congress to come in and try to do something.
Okay. It should've said March then on that response.
Yeah.
All right. Thank you very much.
Our next question comes from the line of Bill Chapman, a private investor. Please proceed with your question.
Guys, good morning.
Good day.
Lou, you mentioned five gallons on this initial test. We've been talking 50 gallons. Was DoD just wanting to hedge the risk of doing this process to go from 50 to five? I know that that sounds like that big a deal, please comment.
It actually ended up as a big deal because of the problems of retrieval.
Okay.
That they were able to find-- Whatever they found, we said we'll take. Because it was more important to demonstrate it than to have a set amount. We want an amount that demonstrates commercial quantities.
In a representative sample.
Yeah. Very representative. The risk was delaying it another six months while they figure out how to get 50 gallons versus, they only got 55 million sitting there. That's why we decided to go with whatever they could get us quickly.
Okay.
Yeah.
Please comment on the risk longer term about getting a larger contract and being able to get the quantities out of those tanks, since that's an issue right now.
I think there's just a lot of institutional barriers because we're doing things that has not been done. As I sit here today, I don't see any, but things will come up, issues will come up. As we move through this initial phase, there were a variety of problems that came up. They're all easily solved, but they're, at the time. No, I don't know of any at the moment.
Okay
it's more the unknown when you're doing a new project than what you know.
Sure.
The client is very excited about what we're doing. Like I say, it really dramatically changes the whole view of what's there and how you do it. It makes the existing operation very doable, where if they had to treat all the waste we could treat, very serious technical issues. It's really a win-win for everyone here, we think.
Okay. Well, let's see. Getting to a larger contract, right now it looks more like that could be initiated in what, 2018? That's your best guess? Yeah.
The thought would be is to do a commercial size project in 2017 and then follow that with an ongoing operation. Like I say, there's ways this could be done very rapidly. We could accept 2,000 gallons tomorrow. There are many barriers. The process has to be further defined as you get into larger quantities.
Okay. Where is Senator Murray going to be overseeing in the Senate energy?
Well, she is, I believe the fourth ranking Democrat. She's on the Appropriations Committee. Has always played a big role in knowing what's going on at Hanford and is very aware of what we're doing.
Okay.
She would be very pleased with any of the results. She plays a big role in the new Congress. She gets along well from a bipartisan point of view on the committees. In general, there's a lot of support on both sides of the aisle for the cleanup program. Most of the districts are Republican, that the sites are in, there's strong bipartisan support.
Okay. Thank you very much.
Our next question comes from the line of Joseph Vaughn, a private investor. Please proceed with your question.
Yeah, I joined this conference a little late, my first question would be, how much cash do you have on hand? How much cash do you have on hand at the end of the third quarter?
A hundred and forty-five thousand.
We're a net borrower.
We're a net borrower.
Yeah.
All excess cash goes to the revolver.
I see. In other words, you're just drawing down more and more on your revolver, right? Is that it, to keep going?
Yeah. When we collect cash, we will pay down revolver and keep just minimum cash on hand.
How much borrowing power do you still have left out of that revolver? What have you got access to?
Yeah. At the end of the quarter, we were at $2.3 million.
You have access to $2.3 million before you had to renegotiate it. Is that it?
Correct.
Okay. All right. The other thing I was wondering about is you have this medical program, and you have this $10 million that's coming in, and I know you spent some of the company's money to get that going initially. Now, I'm just wondering, are those funds commingled in any way? Is that a whole separate fund, $10 million goes strictly to medical, or is it commingled with the overall companies?
Well, in the term agreement, the medical company owes Perma-Fix in the neighborhood of $2-plus million.
Okay.
Upon closing the deal, there's a plan for that cash to be paid in a short period.
You're going to have an extra $2.5 million available in your kitty, right?
Correct.
That's good. You're only going to end up with 28%, somewhere around that, of the medical company after all is said and done?
On the first tranche, it'll be 31-ish, and then if all the warrants are exercised, we would go to about 25.
I couldn't quite understand the way it was scaled. They had the opportunity to buy an additional 10 million at a higher share price. I mean, the way it was structured, it was kind of a convoluted deal.
They have warrants for an additional 10, we and another investor have certain warrants as well. Our share price is higher. It is more like the original Digirad price.
Okay. Do you have any kind of idea of when is this going to be submitted to go through government review? Okay. Beyond that, how long would it potentially take to get approved by the government?
Our thought at this point is that we are delaying a lot of the testing that is needed for FDA submittal because of the cost. That on closing, you would be looking at least six months of work needed to develop the portfolio for the FDA.
I see.
After closing, you have that period of time, and that could vary. That could be 9 months, or it could be a month or so later.
You mean, you're giving yourself a minimum of 6 months to get it ready to go through the.
Right. At least 6 months
process.
Our FDA advisors have been telling us that through the route we would choose, it would probably take a year and a half, maybe less, maybe more, for the.
So you-
yeah, to analyze it and get back to us. We think it's a very simple process, but nothing with the FDA, I'm sure is simple.
You're looking at a couple more years till you potentially could start getting some revenue out of that, right?
Yeah. Correct. That's why with the investor, when we discussed our budget, our path forward, we really wanted two tranches. One was what we think is needed, and the second is if we run into any problems, there's a second tranche that could be exercised to finance the project.
Okay. I guess my final question is this. You have been forecasting things which you never seem to hit your deadline on. You never seem to hit the deadline for it.
Especially this year.
I understand.
I agree, yeah.
I've had shares in the company for quite a few years, you've seemed to miss a lot of deadlines. What I'm wondering about is, we've had all these delays from the government. How sure are you about the revenue that you're going to get out of the fourth quarter? Is that pretty solid?
Yeah. It's easy to predict the next quarter. There, we've got pretty good visibility. I can at least do that. The usual question now is, what do we think next year's going to be? To be honest with you, because of what we've just been through, we're a little more shy in trying to give some guidance until we get into the year because of what we've seen over the last year and our ability to predict this year. I was pretty good at predicting the year before, when we entered this year, I thought we should do even better than we did last year, that didn't work out.
Don't you have any long-term contracts? I mean, where you have a guaranteed revenue stream?
On the waste side, we do not. The waste side is, when you're dealing with the government, you got two ways you can go. You can go cost plus, which is our service business, which gives you long-term visibility and reliability, and then fixed price, which is our waste side. Our waste side is fixed price. We charge what we think is fair, and we have contracts with the government, but then the government will not guarantee anything with a fixed price contract.
Joseph, that's actually what, when I talked earlier about our revised business development program, is exactly what we've been focusing on, getting and positioning and bidding on longer term contracts that give us more of a stability on the nuclear services side. Those are primarily the bids that we're focusing on right now is long, five-year contracts that would provide that stability.
Yeah, you used to announce periodically at least smaller contracts from time to time, and I haven't seen any announcements of that kind, I don't know, in recent months. Once in a while you would announce, publicize, you picked up a contract for this, that. They weren't big, but they came in and didn't seem like you got any of this in the last recent months.
Well, unfortunately we have, but we had clients who were adamant that we not say anything about them. We had one large one we were just about to finish, which was almost $10 million, because of the nature of the work.
It was a commercial client.
It was a commercial client, they were adamant that we not say anything.
Okay. You've been talking a lot about this high level waste, I'm just talking about, never mind the high level waste, but just the normal course of business. Is there opportunities for, do you see any hope for contracts from other What about your regulars, customers, new customers, aside from the high level waste?
Yeah. There's been an impact due to the election, as we mentioned earlier on, which has slowed those things down, but that's really what our focus has been on. If you look at our client list, over the last few years, it's been pretty focused on Department of Energy and a few DoD and commercial clients, that's what we're expanding.
Okay.
We're seeing a lot more on the Corps of Engineers and the Navy, Air Force, and Army, as well as some very specific commercial clients in the scrap arena, as well as the mining and oil and gas arena that generate natural occurring radioactive materials, which is called NORM. We're seeing a growth in those. In fact, this next quarter, we'll see a significant growth, most likely, again, that arena for us. We are expanding out much broader than we have in the past and much more methodically to get that diversification of a client base.
Okay, fine. Thank you. That's it.
Thanks.
Our next question comes from the line of Sam Rebotsky with SAR Asset Management. Please proceed with your question.
Sam?
Mr. Rebotsky, your line is live.
Hello?
I think you have us on mute.
Hello?
Hello?
Hey, Sam. Yeah. Yeah. Let me ask you. I'm sorry. I had to jump off the call. I had to take another call. You may have covered this. Is there any way that, with the transactions that had took place with Veolia and the transactions taken with EnergySolutions, with your possible need for money using investment bankers or looking for somebody to acquire Perma-Fix? I don't know if you covered this while I was off, but
Well, we constantly are getting inquiries, and if they're of any significance or any reality to them, we immediately talk to the investors about them. No, at the moment, there's nothing like that going on.
No. What I understand is to the extent you should seek it out or have an investment banker help you seek it out, to the extent that the valuations put on these other companies seem to be higher than Perma-Fix. Anyhow, that's my recommendation at this point.
Well, we retain investment bankers now and then to assist us.
Yeah
in doing valuations and assist us in what to do.
Okay.
In not too distant past, we have. At this point, acquisitions are a moment in time.
Yeah. I wish that the marketplace could put an appropriate value on what you've done and what you plan to do, because clearly you've done a lot, and the marketplace is not valuing you properly, and yet these other companies are getting greater valuation. Look, I wish everybody a happy Thanksgiving, and hopefully sometime in the new year, a better valuation and earnings come through. Good luck, everybody.
Okay, thank you.
Our next question comes from the line of Anthony Marchese, a private investor. Please proceed with your question.
Yeah. You mentioned that you'd wind up with 25%, and maybe I'm putting the cup is half full scenario here, but yes, you're winding up with 25%-30% of medical, but at the same time, you're not risking any real shareholder money, or your shareholder money to develop the company. What do you see, and maybe you've covered this in prior calls, but give us a 30-second overview. What do you see as the market opportunity? My sense is 25% of a large number is a very large number for shareholders. I don't think I'm wrong, but if you could just take us through that.
What we've seen here is that the risks of getting to where we were going and bringing in money to do this without our own capital, the board was very adamant that this makes tremendous sense. The numbers you say are very large. Technetium is a The whole business, the whole market worldwide is, depending on how you add it up, somewhere between $3 billion and $6 billion a year for the technetium market. Now, the part we're focused on is that key part of probably just selling generators. It's a $500 million to $1 billion market a year. It's a very significant market. It has tremendous potential because it controls the whole market. Among the whole business of diagnostics, technetium is critical. That was pretty much what you just said was our view.
When we look at this, without risking any further Perma-Fix funds, we can find out if this will capture and really change the whole technetium market. We needed $10 million to $20 million to get there, and this is, we thought, a very good way to go. At the same time allowing ourselves then to continue to stay very focused on the environmental side of the business and the other technologies that we've developed that have potential commercial application.
Right. You have 11 million shares outstanding or 12 million shares outstanding. If you float 4 million shares, that only gets you, at today's prices, 16 million. At the same time, you'd also be diluting the shareholders massively. I don't disagree with what you did. I think that-
No, we-
that business is-
We've had a variety of independent people look at this as we were trying to get to a point, and the conclusion was this is a pretty good deal for where we need to be.
Final question, when do you anticipate closing this, or is there an anticipated closing date at this point?
Well, our hope, and this is shared by the investor, is that the hope was by the end of the year.
Okay. All right. Thank you very much.
Now, there's no guarantees there. You know how
Right. I know.
Yeah.
Thanks.
Okay. Thank you.
We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.
Once again, I'd like to thank everyone for participating in our third quarter conference call. To wrap up, we're encouraged by the outlook of both treatment and services, the significant growth opportunities ahead, especially looking forward to reporting on the outcome of our high-level project. We appreciate the support of investors that agreed to fund our Medical, which will help accelerate our path to commercialization while allowing management of Environmental to focus back on 100% of our efforts growing the waste side. Appreciate everybody's patience, support, and look forward to providing you updates in the near future. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.