Greetings, and welcome to the Perma-Fix Environmental second quarter 2016 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I'd now like to turn the conference over to your host, Natalya Rudman. Please go ahead.
Thank you, Shay. Good morning, everyone, and welcome to Perma-Fix Environmental Services second quarter 2016 conference call. On the call with us this morning are Dr. Lou Centofanti, Chief Executive Officer, Ben Naccarato, Chief Financial Officer, and Mark Duff, Executive Vice President. The company issued a press release this morning containing second 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 would 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 subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performances of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the US Securities and Exchange Commission. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. I'd now like to turn the call over to Dr. Lou Centofanti. Please go ahead, Lou.
Thank you, Natalya. Welcome everyone. First of all, I think we should apologize for the late filings. There were two major events that caused this. One was the requirement to get a waiver from our lenders. We required this waiver due to the fact we were unable to meet certain covenants in our credit facility. We have received assurances we will receive this waiver as we have in the past. Like with any large organizations, banks have procedures they go through and processes that take time that we have no control over. The second, the other event was our decision with the planned shutdown of our M&EC facility. We needed to complete the plan, conduct evaluation related to the impairment, which took time. I'd like to also turn to the results, which were disappointing. The numbers were weaker than we had hoped.
Once again, we experienced delays related to the timing of shipments. Despite these delays, it is important to note we did achieve positive adjusted EBITDA for the quarter. It's also important to point out these projects were not canceled, but delayed because of shipping issues. We still expect a strong second half of the year. Our only concern is our biggest challenge, given the influx of shipments in the second half, is how quickly we will be able to treat the waste and how much we'll be able to recognize in 2016. As a result of these concerns, we are revising our guidance downward. We currently anticipate an adjusted EBITDA in the range of $3 million to $4 million. With these challenges, they do mask some of the very positive developments going on in the company.
First, as we looked at all aspects of our business to identify areas for cost savings, with the expiration of our lease in our M&EC facility in Oak Ridge, scheduled for January 2018, we have decided to shut down the facility. We believe shutting down the facility results in significant cost savings. In fact, M&EC was also the only plant that we do not own. We're relocating certain equipment and shifting specialized capabilities from our M&EC facility to our other facilities, where we believe we have sufficient capacity and can easily reroute waste streams with minimal impact to revenue or disruption to our customers. I think it's important to point out that with these three owned facilities, we have very broad permit licenses that allow us to expand as much as we need to in this business.
During the transition period, we will continue to process waste, gradually wind down the facility over the next 18 months with a scheduled end date of January 2018. As a result of this decision, which should be very positive in the long run because we should save significant fixed costs, our second quarter financial results reflect certain non-cash tangible and intangible asset impairment losses and other charges which Ben will discuss in more detail. On the last call, I had mentioned that the company is on track for the most transformative event in the company's history, which is commencing treatment of high-level waste. Specifically, we received an IDIQ contract from the DOE for up to $8.6 million to demonstrate the treatment of high-level waste by the end of the year.
Very excited to tell you it's on schedule, and as many of you know, I'm very limited in what I can say, but this project, being our first major foray in high-level waste, become the major priority for our customers In fact, what we're seeing is that we're getting tremendous support at the various highest levels of government on what we're doing in this project. The project is progressing as expected and is on track with our customers, and our expectation is both operationally and from a timing standpoint, to be able to complete the initial demonstration by the end of the year. Turning now to the service segment, we saw growth and profitability in this segment and are excited by the number of projects we're bidding on, which is a great introduction for me to introduce to you our new Executive VP, Mark Duff.
I'm very excited and pleased to present Mark as our Executive VP. Mark brings 30 years of management and technical expertise in the Department of Energy, Department of Defense, and in the small company management area. Most recently, he was responsible for the successful completion of over 70 performance-based projects at the Paducah Gaseous Diffusion Plant, which was a five-year project with a total value of $458 million. He was also senior manager supporting Babcock & Wilcox, where he oversaw implementation of the American Recovery and Reinvestment Act at Department of Energy's Y-12 facility with a $245 million budget for new cleanup projects completed over a two-year period. Mark began with Perma-Fix in June, has immediately focused on driving top-line growth, providing leadership to our business development effort to expand and generally grow revenue.
I'm real pleased in the short time Mark has been here, we've already seen the positive results of his efforts. Turning now to the medical side of our business, our majority-owned subsidiary, Perma-Fix Medical. We're in active discussions with a number of potential investors, partners, distributors, and customers. We continue to make progress preparing for our 505 [2] for submission to the US FDA. Since we're focusing on the regulatory filings, we have not had any public announcements. Nevertheless, we are making steady progress on those important fronts. We are in active discussions with potential investors, partners, distributors, and customers. Based on the feedback from the industry, we strongly believe our new process to produce technetium-99m has the potential to transform the radiopharmaceutical industry, and we look forward to providing additional updates in the future. To wrap up, we are very disappointed by the continued delays we experienced.
We believe we're on a strong growth trajectory with some very exciting opportunities on the horizon, including the high-level waste project. In the meantime, we'll continue to look for ways to grow the business while streamlining operations. We believe the shutdown of our M&EC facility will contribute significant fixed cost savings. Anticipate a strong second half of the year and look forward to providing additional updates. I'm very excited again to turn over the call to Mark Duff, who will provide a quick introduction, and then Ben will go into more details on the numbers, and then we'll be back to answer questions. Mark, welcome on board.
Thanks, Lou. I appreciate that. I am really excited to join Perma-Fix at a time in the company's history that has such great opportunity for growth and expansion. Before taking this position, I personally conducted an exhaustive review of all of our current operations. I assessed our brand in the industry and our reputation and surveyed our potential for growth opportunities. I strongly believe this is a tremendous opportunity to grow the services segment as the market's looking for leadership in both remediation in the field sector as well as the ability to reduce costs to projects through waste treatment technology. With the integration of both our services and waste treatment segments into our business development strategy, Perma-Fix can increase market share within the government and the commercial sectors while providing increased value to our customers.
Perma-Fix has an excellent track record and an impeccable reputation in the industry for delivering value and solutions to very complex environmental waste management problems. With a more focused and integrated approach to our business development, I'm very confident we can rapidly grow the services side of the business. Within the treatment segment, Perma-Fix has a unique opportunity with our existing facilities and associated permits and technologies currently in place to treat high-level waste in addition to what we've done from a legacy fashion with low-level mixed waste in our business. Given the fixed cost nature of the business, we can rapidly grow margins and profitability by driving top-line growth and begin to solve high-level waste problems as we have for low-level waste for so many years. I'm 100% confident we can unlock this potential.
I look forward to meeting the investors and answering any questions you may have going forward. With that, I'll turn it over to Ben.
Thank you, Mark. We'll begin with revenue. Our total revenue from continuing operations in the second quarter was $14.8 million, compared to last year's second quarter of $16.3 million, a decrease of $1.5 million or 9.4%.
This decrease in revenue is a result of the shortfalls as we discussed in our revenue in the treatment segment of $3.1 million, where the timing delays of expected waste shipments resulted in lower volumes at our plant. The shortfall, however, was offset by increases in our service segment of $1.6 million, as we saw increased event-based project work. On cost of sales, we were $13 million in the second quarter compared to $12.3 million in the prior year. Our treatment segment costs included a one-time write-off of prepaid regulatory expenses related to a BTV treatment asset, which we are decommissioning as part of the pending shutdown of our M&EC Oak Ridge facility. Excluding this expense, our treatment costs were $936,000 below prior year as various expenses related to lower volume and lower fixed expenses at the plant of approximately $428,000 accounted for the difference.
Our cost of sales in the service segment were up $1 million compared to prior year. Incremental project-related expenses increased as a result of the increased project work, while our fixed overhead expense remained relatively flat. Our gross profit for the quarter was $1.8 million, compared to $4 million in 2015. Excluding the asset write-off, gross profit in the treatment segment decreased by $2.2 million compared to prior year. Lower revenue is the main reason for the reduced gross profit, although revenue mix minimally added to this variance. Our reduction in facility expenses partially offset this variance. In the service segment, gross profit increased $537,000, both from the increased revenue and a more profitable project mix. Our G&A costs for the quarter were $2.4 million compared to $2.9 million last year, a decrease of $500,000.
Lower payroll expenses and the recovery of a long-time bad debt expense were the primary reasons for the improvement. These numbers were offset partially by increased costs related to bidding proposal. Our loss from continuing operations for the quarter before taxes was $11.3 million compared to $443,000 last year. Most of the current year loss was due to the $10.7 million expenses related to the impairment of tangible, intangible, and prepaid assets related to the decision to shut down the M&EC Oak Ridge facility, and also the $416,000 related to our medical isotope segment. Our net loss applicable to common shareholders was $8.2 million compared to a net loss of $154,000 last year. M&EC shutdown costs accounted for $7.5 million of this loss, and our medical isotope segment again accounted for $416,000.
Within the M&EC costs, there was a tax benefit of $3.2 million resulting from the impairment losses from the permits. Our loss per share was $0.71, compared to last year's loss per share of $0.01. Our adjusted EBITDA from continuing operations for the quarter, as defined in this morning's press release, was $824,000 compared to $2 million last year. Some items on the balance sheet. Our cash was down $1.1 million, primarily from debt maintenance payments totaling $1.6 million. Our other receivables were down $1.6 million, primarily from the amortization of prepaid expenses and the write-off of the prepaid expense related to the M&EC asset. Our impairment of our M&EC tangible and intangible assets, of course, explains the drop in property and intangible assets. Our waste backlog for the quarter was $3.6 million compared to $4.7 million at year-end and $5.7 million a year ago.
Our current debt, excluding our debt assurance costs, were $1.5 million, down $1 million from year-end and lower than the prior year's second quarter of $2.3 million. Our total debt at quarter end was $10.9 million, $10.7 million of which is from our lender, PNC Bank, and we had a small amount left from our shareholder loan, which has since been paid off. Finally, our cash flow activity year to date as of the second quarter, our cash used by continuing operations was $1.5 million. Our cash used by discontinued operations was $458,000. Our cash used for investing was $71,000, of which $28,000 was for capital spending. Cash provided by investing activities from discontinued ops was $46,000. Our cash provided from financing was $962,000. Finally, I'll address one more time the notification of late filing for our 10-Q.
The covenant in our credit facility requires that we maintain a 1.15 to 1 ratio on our fixed charge ratio. We failed to achieve this in the second quarter, primarily due to the aforementioned delays impacting our top-line revenue. We are in discussions and expect to receive a waiver from our lender. Unfortunately, the bank was unable to do this timely and required us to file the extension. We do expect to receive the waiver, at which time we will file our Form 10-Q. I'll turn the call back over to Lou.
Once again, I'd like to thank everybody for participating or Second quarter conference call. We look forward to a strong second half of the year. We anticipate solid growth in treatment and services, and we're extremely excited about the outlook for our high-level waste project. Pleased to welcome Mark Duff, who I believe brings a strong skill set and significantly expands the depth of our senior management team, especially on the sales and business development side. We continue to advance our process to produce Tc- 99 and remain on track to submit a filing with US FDA. We think the future's never been brighter, and we anticipate the continued support and patience of our shareholders. We look forward to providing additional updates in the near future, and thank you all. With that, we can now open the call 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 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 pull for questions. Our first question comes from Walter Schenker from MAZ Partners.
Hello.
Hey, Walter. How are you?
Can we just spend a little bit more time on the closing of the Oak Ridge facility? You lost your lease because it went to someone else. You lost the lease because you didn't want to pay to renew it, because that was your largest facility. It had broad ranges of capabilities from PCBs, which was the benefit a number of years ago when the government closed down its incinerator. Given that the long-term pieces of very large amounts of stored waste, I'm trying to understand why closing this is not a fairly negative step.
It's not negative at all. Number one, the PCB treatment is at the other Oak Ridge facility.
Okay.
That will continue. That facility, this is a good example. We have almost 70 acres at that facility. It has a tremendous permit and license. We have the ability to easily expand. The capabilities of M&EC, it's a very old building. It is an extremely expensive building. It's also on a DOE site, which adds tremendous institutional costs and other issues. The Department of Energy, their long-term plan is to tear that building down. When they called us and said, "We would really not interested in extending the lease because we need that for redevelopment," our initial reaction was, fine. This is a perfect time. We've been looking at it over the last two years.
We've been building up the capabilities of the other three facilities, and it was really obvious to us that the tremendous cost at M&EC were not worth the capabilities there that we had at other facilities. It was a very easy decision at the time.
And therefore-
We'll shut the permit down. It'll be gone, and the capabilities there will be closed, but our capacity to treat waste will exist at all the other facilities.
The answer, in my words, is you have enough capacity elsewhere as you look at your expected flow of waste streams to handle it without this facility.
Yes. The M&EC facility was of value initially when you had at Oak Ridge tens of thousands of drums of waste that really had low revenue associated with them and had to be treated in large volumes and rapidly. They were very close to the facility and needed large storage to get those out of the sites and move them to a treatment facility. We now have that ability at the other three facilities, so that we can easily dramatically expand our ability to treat waste if needed. At a much lower cost and with much ability to offer a lower cost and still make a very good profit on it. When we looked at this, to be honest with you, we've been thinking about this for quite a while.
Okay.
Yeah.
Thank you. I got it.
Yeah.
Thank you. Our next question comes from Bill Chapman, a private investor.
Hey, guys. Good morning.
Hey, Bill. How are you?
Oh, just fine. I want to commend you and your team for coming up with all these new ways to different processes, including the medical one. I would like to know, we've been talking about this one plant you're doing this test on that's got 66 million gallons of waste, and you can treat approximately 80% of it. I was curious about the other government plants that have waste to be treated. If this works out, you can carry that to these other plants. Could you give me an idea, Lou, about how much untreated waste is there out there at these government facilities?
Well, one, we haven't really disclosed what plant we're working at.
Yeah.
I've tried to talk in very broad terms about this because we are under confidentiality agreements here with our client. When you're looking at this, if you think about it, all you need to do is go to the DOE websites and there's a tremendous volume of Defense high-level waste sitting out there at four or five sites. Savannah River, Idaho, Hanford all have tremendous volumes of high-level waste. Some of them will be treated on site. What we think we have is a path forward to treat some of the problematic high-level waste streams very simply and easily at our facilities. At this point, we're seeing great success, great progress.
We're hoping here to, as I've mentioned in the past, by the end of the year to have not only treated high-level waste streams, but to put them in a disposal facility, to go through the whole process. The excitement here is as much as that this project is. Today, it'd be hard to talk about all the commercial high-level waste that sits out there because there are all sorts of institutional barriers for that waste. Our present strategy is take a reactor core and throw it in the ground for high-level waste, which is, one way, environmentally crazy. As I said, the Defense waste offers a proven ground to fine-tune how you treat high-level waste. We're real excited about that, to be at the forefront of providing some of those options. There's a lot of it out there.
Hopefully, by the end of the year, we'll really be able to talk in very specifics and details on how it works and how we pull this off. Right now, like I say, it's attracted All the way to the top of the Government, there's attention on what we're doing. We're real excited about that.
Okay. Let me ask you, too, are there any new technologies or way to process that could threaten this big advantage you possibly have?
No. What we have is we have the technologies to do the whole kit and caboodle very simply, easily, and inexpensively. We're not talking about grandiose, big treatment, new technologies. You're taking chemistry and use it to solve the problems and to put it in a form that environmentally would last geologic times. What we're offering is that you could take nuclear waste, put it in a waste form through treatment that will last over geologic times, and we have examples in nature where exactly what we're proposing has lasted geologic times.
Okay.
We don't need anything fancy. We've got simple solutions that don't require exhaustive capital expenditures or dramatic breakthroughs in science here.
Okay. Thank you. Let me ask one more question on the raise of the Perma-Fix Medical. Do you anticipate that possibly in the next month or two, or give us a timeline when you might be able to close that?
Yeah. We've got several options we're going down. There's been no final decision on a final option. We're looking at several options. We're excited about the possibilities there. Hopefully, we'll be able to talk in more detail in the very near future.
Okay. Thank you.
Your time frame is about correct. We should be able to talk about that in the next two months.
Okay. Okay, guys, thank you.
Thank you. Once again, if you do have a question, please press star one at this time. Our next question comes from Robert Mining, [audio distortion] Private Investor.
Lou, is there anything you would be free to say now to help quantify the magnitude of this high-level waste opportunity from sort of visible stuff in the near term? It may be that you can't say more than you've already said, whatever help you can give us on quantifying that would be of interest.
Well, it's hard to quantify, the Department of Energy for Defense waste, high level, the budgets are in the hundreds of billions of dollars right now that have been accrued on the federal balance sheet. We think we could do it for a fraction of that. You're talking
A dramatic market just in defense waste. There are processes going on at the sites which will treat some of that. We're not talking about the whole thing, but we think we can contribute significantly to reducing that number dramatically.
You're talking $ multi-billion. I could tell you at least that. Easily $ multi-billion business.
I'm sorry, $ multi-billion net to Perma-Fix?
Right.
I presume this would be over a period of many years. What sort of magnitude are we talking about for a number of years to get there?
As you've all learned, nothing goes fast in this business, it will be what we think is a multi-year project to demonstrate and to move up the chain, we're very focused now on the second step, which will be to go from tens of gallons to thousands of gallons. For next year.
Great.
Easily, if you look at our facility that would do this, it could handle very significant volumes of waste.
Great. Thank you.
Easily. Yes.
Thank you. Our next question is a follow-up from Bill Chapman of Private Investor.
Yes, Ben, could you address the tax credit you guys were able to take on the write-off? Do you expect to get a sizable amount of money from the IRS back, or give us some.
No, it's just an expense adjustment. We normally, all other aspects of our taxes have a valuation allowance, which allows us to not report taxes. If you recall, though, I don't know, a year or so ago, we had to take a tax adjustment because of what's called an impairment tax credit, and please don't make me get into what all that means. It's related to the permits and the long-lived intangible assets. Because we are now impairing one of those assets, we're actually going the other direction. This will pretty much just increase our NOLs over time, therefore, it's all kind of mixed into a total tax burden, but there won't be an immediate tax pickup because we're not paying taxes at this time.
Okay. Thank you.
Thank you. At this time, we have no further questions. I will turn the call back over to our speakers for closing comments.
Once again, I'd like to thank everybody, and we appreciate your support. Look forward to strong second-half growth in treatment and services, and very excited about the outlook. Look forward to providing additional updates in the near future. Thank you all.
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.