Yahoo Finance Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) Q1 2024 Earnings Call Transcript
Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) Q1 2024 Earnings Call Transcript May 11, 2024
Perma-Fix Environmental Services, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day. And welcome to the Perma-Fix Fiscal First Quarter 2024 Earnings Conference Call [Operator Instructions]. I would now like to turn the call over to David Waldman, Investor Relations. Please go ahead.
David Waldman: Thank you. Good morning, everyone, and welcome to Perma-Fix Environmental Services First Quarter 2024 Conference Call. On the call with us this morning are Mark Duff, President and CEO; Dr. Louis Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing first quarter 2024 financial results, which is also posted on the company's Web site. 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 the 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 to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and a 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 Web site. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.
Mark Duff: All right. Thanks, David, and good morning. As discussed in our year-end conference call, our financial performance in the first quarter of 2024 was impacted by several temporary headwinds, which had a significant impact on the first quarter and, to a lesser extent, the second quarter. However, we believe these challenges were one-off impacts and are largely behind us now. As a result, we're regaining our momentum with improving Q2 performance and we anticipate a strong second half of 2024. At the same time, we continue to invest in our 2025 vision, which we believe has the potential for significant growth and even transformative performance. The weakness we experienced in Q1 was due in part to delayed project starts, as previously discussed during the fourth quarter of 2023.
We completed our two largest service projects at Princeton Plasma Physics Lab and the ex-McKee project for the Navy. These two large projects have completed all field work now. However, they were not replaced in time by new projects due to delays in mobilization activities until late April. We also experienced challenging weather conditions during the first quarter of 2024, which resulted in the closure of two of our facilities for a week, including delays in waste shipments to support backlog. In addition, due to the inability of Congress to pass the federal budget on schedule, the government had been operating under a Continuing Resolution, which contributed to delays in procurements, project starts and waste shipments since government clients were holding back budgets due to uncertainty and the potential of a shutdown last year -- last March.
However, we used this period for equipment replacement and repairs, treatment program and operational enhancements and testing to support permanent expansion and broader market penetration. We believe these headwinds are now largely behind us. And as things normalize, we remain confident in getting back to and surpassing our business-based goal of $25 million in revenue per quarter. Our earnings during the quarter were also impacted by deliberate investments in research and development. For instance, we are investing in our sorting technology, including the fabrication of a second unit to be deployed this summer and potentially a third unit to be deployed before the end of the year. Most importantly, we're investing in our new technology to treat PFAS contamination.
As a result of these investments, we have completed the pilot plant testing the PFAS destruction levels and have seen them exceed anticipated regulatory requirements and are now in the process of final design and the fabrication of the first operational unit in late Q3. We plan to begin accepting PFAS contaminated liquids for destruction before the end of the year. We believe these investments are prudent, and I couldn't be more excited about this new PFAS business line, which I will discuss further in a moment. In addition, as we have discussed in the past, we are advancing several very large initiatives that we expect will begin to materialize in the second half of this year and set the stage for very significant growth beginning late this year and into 2025.
But first, let me begin by providing an update on our Services and Treatment segments by addressing some of our recent wins, and then I'll provide updates on some of the larger initiatives that are underway. Within the Services segment, we are benefiting from increased bidding opportunities right now, including both the government and commercial sectors. We're positioned for large ongoing procurements within DOE and the US Navy, as well as other midsized procurement initiatives at DOE, DOD, and EPA. We've been able to secure strong teaming positions for awards -- for potential awards anticipated through 2025 that would potentially represent substantial increases in sustainable revenue for the next five to 10 years. For example, we're participating in large procurement opportunities as part of larger teams on the Operations and Site Mission Support contract, which we referred to in the past as the OSMS bid, along with the West Valley Demonstration Project near Buffalo, New York, and upcoming Navy projects, which are expected to be awarded over the next several quarters.
In addition, I'm proud to report that we were recently selected by DOE's Office of Environmental Management to participate in a 10-year small business set-aside multiple award IDIQ contract to provide nationwide deactivation, decommissioning and removal services for the Office of Environmental Management, the National Nuclear Security Administration and the Office of Naval Reactors and Office of Sciences, all within DOE. Perma-Fix's team is among a select group of small businesses chosen, making us eligible to compete for firm fixed price and cost reimbursable task orders, the maximum ceiling on the overall contract of $2 billion. While this is an IDIQ contract, which means basically that it's a hunting license, we believe this award provides us several opportunities for revenue growth within our base business.
Even if we were to win just a proportional share of the award, it would provide meaningful revenue to the company over the next 10 years. That said, we believe that based on our growing reputation, our technical capabilities and our proven track record relative to some of the small -- other small businesses participating in this IDIQ, the potential opportunity could be much greater. We expect that recent wins such as these and numerous projects currently in our pipeline will continue to support our long-term growth plan and help us further diversify our revenue stream. Overall, we're encouraged by the long-term outlook of the Services segment as seven new projects are mobilizing in May to support increased revenues in the latter half of the year.
Several of these projects include soil sorting technology deployments, and we continue to realize the growth of these applications on larger projects, both in the US and in Europe. Within our Treatment segment, the backlog for waste treatment has been growing over the past few months, which we -- which has resulted in increasing revenues through the second quarter of 2024. This included increased waste shipments within the commercial sector, along with steady sales from our industrial waste programs as well. We've also been implementing facility upgrades at each of our waste treatment facilities to support modernization, new technology deployments and preparation for upcoming target waste streams with larger inventories defined at several client sites.
In March, the long-awaited TSCA VTD or vacuum thermal desorption system treatment took place at our Perma-Fix of Florida facility along with members of the U.S. EPA Region 4. While final review and verification analysis are still pending, acknowledgment of successful testing by the EPA in a few months will provide a basis for Perma-Fix of Florida to obtain a TSCA treatment permit to provide generators as a path forward for difficult to treat higher activity task and contaminated waste streams. We estimate this backlog of waste within the industry to generate approximately $10 million in incremental annual revenue beginning in Q4. I'd now like to turn our attention to several of the larger projects we're working towards. As we've discussed previously, we believe that these initiatives should contribute to a meaningful growth in revenue and earnings.
I would like to briefly discuss each of these initiatives and provide our investors with an overview of the vision for the balance of the rest of the year and next year. First, let me start with the developments at Hanford. As many of you may be aware, DOE has been involved in what is known as the holistic negotiations for nearly five years with members of the tri-party agreement at Hanford, which includes state regulators, EPA and the DOE. The purpose of these negotiations, as defined in the Hanford Settlement Agreement, published for the public -- published for public comment just a few weeks ago on April 29, is to develop the strategic commitments by all the parties to clean up Hanford. I'd like to congratulate DOE for defining an agreement that adapts to new technologies to accelerate the tank cleanup program while leveraging existing commercial capabilities to be an integral part of the program over the next several decades.
Under the Settlement Agreement, DOE states that the DFLAW hot commissioning program will be completed no later than August of 2025. While this is a few quarters later than anticipated, DOE is committed to the schedule and the legally binding agreement and may complete the milestones sooner. As we've discussed, the DFLAW affluent will be processed by Perma-Fix Northwest to include any potential waste generated during the hot commissioning program as well, and along with supporting the DFLAW operations for at least the initial 10 years of its operational life. We believe we are well-positioned to treat all of the affluent waste from the operations as defined in the January 2023 Record of Decision by DOE, which estimates up to 8,000 cubic meters of waste to be generated annually upon hot start-up of the vitrification.
As I've mentioned in the past, the volume of this waste will be more than double the current production of all of our plants combined on an annual basis. Also defined in the new Settlement Agreement, DOE is committed to complete waste retrievable from 22 tanks within the west tank farm for grouting off-site and disposal off-site by 2040. It's difficult to define the exact quantity of waste to be removed from this inventory during that period, but unofficial estimates include expectations for up to approximately 3 million gallons of waste to be processed annually to meet these goals for 2040. The agreement is unclear about when these operations would commence. However, the recent Hanford systems 10 document defines retrievable operations beginning in the January '26 time frame.
This is critically important as the DOE has formally recognized grouting's importance relative to the overall closure strategy as a preferred supplement to the current DOE vitrification strategy. And while DOE will continue to develop multiple pathways for grouting, we remain confident that our existing Perma-Fix Northwest facility in Richland, Washington adjacent to the site will continue to provide the lowest risk, best value strategy for grouting this waste for transport in a solid form via rail to out-of-state disposal facilities. We believe that our location is ideally suited to treat a large portion of this waste given its proximity, its permits and our proven track record overall for safety. Moreover, we believe we can provide a highly cost-effective solution for these wastes that could potentially save taxpayers billions of dollars as an alternative to vitrification alone.
The Hanford mission and planning that has unfolded to include grouting of tank waste is a huge validation of our capabilities. As such, we plan to increase from our current capacity of 300,000 gallons per year for grouting to levels around 3 million gallons per year as the program progresses over the next several years. As I mentioned, the agreement is unclear about when these operations would commence. However, the Hanford system's Rev 10 document published in January by DOE is currently being implemented to include two new tank waste removal systems to be installed and operating in late 2025 and early '26. One of these removal systems will be built, installed and operated to support the DFLAW facility, while the other will be dedicated to the removal of tank waste for shipment to commercial grouting facilities for off-site disposal.
This is a very significant development and reaffirms our strategy and outlook for our involvement in these transformative projects. Overall, we look forward to working closely with DOE to support this mission of remediating Hanford, both through vitrification and through grouting, as well as leveraging these capabilities at our other critical sites around the country. On a separate note, we're expanding our waste treatment offering within the commercial and international markets, including Europe, Mexico and Canada. As announced last year, our joint venture was awarded a EUR 50 million seven year contract by the Joint Research Council for the European Union at the Ispra facility in Italy. Work on this project is progressing at JRC as we continue to work on the design and business model for our proposed new facility in the UK, with the initial waste shipments projected for that JRC contract to begin in late Q4 of 2025 to the US until the new facility in the UK is commissioned.
This award is very important to us and it opens up substantial opportunities throughout Europe. This and other international opportunities in Germany and other European countries, along with Mexico, are expected to generate sustained receipts beginning in 2025, providing combined revenues estimated to be over $10 million annually. On one final note, I'd like to discuss the rapid and significant progress we're making in advancing our new patent-pending technology to treat PFAS contamination, which we recently trademarked as Perma-FAS. Both the White House and EPA have made this a major focus due to the hazards associated with these forever chemicals. Thousands of sites across the country and the world have large inventories of these chemicals, not to mention all the sites with PFAS contamination that would require remediation.
Estimates of this market vary widely. However, the opportunity to provide services and treat PFAS contaminated waste for government, municipal and commercial applications is estimated to exceed $100 billion over the next 10 years. In addition, initial estimates associated with impact to soils include more than 200 million acres of contaminated farmland in the US alone. In addition to earmarking billions of dollars in federal funding, the EPA has taken decisive action to address this problem, including the recent designation of PFAS as a hazardous substance, which enables the Agency to compel responsible parties to pay for or conduct investigations and cleanup, as well as the addition of 7 additional PFAS to the list of chemicals covered by the Toxics Release Inventory.
EPA has also issued a CERCLA enforcement discretion policy that makes it clear that EPA will focus enforcement on parties who significantly contribute to the release of PFAS chemicals into the environment, including parties that have manufactured PFAS or used PFAS in the manufacturing process, along with federal facilities and other industrial parties. Importantly, current and former waste producers are now beginning to understand that liability ultimately resides with the generator of the waste and that they are not absolved of this liability if the waste is not properly remediated. In contrast to our party -- excuse me, in contrast to our process, which offers a sustainable and an environmentally responsible solution, traditional disposal methods for PFAS contamination materials such as deep well injection and land-filling pose substantial environmental risk, including the potential for groundwater contamination.
Towards this end, we continue to scale the process, and with the pilot plant test now complete, we have a very high degree of confidence in moving forward. And the pilot plant testing was not only successful, but exceeded our expectations. In fact, our process achieved PFAS destruction levels of 6 9s or 99.9999%, exceeding anticipated regulatory requirements. These tests affirm -- or reaffirm our prior bench-scale testing, which indicated our process should effectively destroy these harmful chemicals at high levels of efficiency, and could be applied to a variety of potential markets, including liquids, soils, biosolids and sludges. The initial feedback from customer -- from potential customers we've been talking to has been extremely positive, given the increasing pressure to treat and dispose of waste or for these waste streams.
In addition to the costs associated with storing these materials, as I mentioned, there are significant growing legal and regulatory requirements to treat these waste, not to mention the potential liabilities associated with these harmful and dangerous waste streams that have permeated landfills and water supplies. We're now in the process of the final design of the operational unit, and we've also selected a build partner for the fabrication of our initial operational system and look forward to providing updates on this shortly. As a result, we're aiming for start-up in September of a system that can destroy PFAS at approximately 1,000 gallon batches and for up to 3x a day. We anticipate this system will receive a variety of modifications and upgrade as we optimize performance and make adjustments to the treatment parameters.
We have established goals for additional units to be installed in each of our existing treatment plants in 2025. In parallel with this effort, we're rapidly progressing the development of both soil and bio-sludge applications, which will use the same technology but require different engineering considerations. We have completed bench-scale demonstration successfully on the solids and are now moving towards pilot scale testing at a 55-gallon volume. We also continue to develop partnerships with industry leaders in remediation as well as universities to provide R&D breadth and verification of services and performance while expanding on new ideas and applications. As I mentioned, given the low cost as well as the technological and environmental advantages of our new process, we are already witnessing significant interest from large potential customers as well as regulatory agencies.
We expect to begin generating revenue from this process in Q4, and our initial estimate for revenues in '24 is approximately $1 million to $2 million. However, based on discussions with customers, we expect to dramatically expand our revenues from this process in 2025 as we have the ability to ramp up production rapidly. And this process has a very high margin potential. So to wrap up, we're extremely encouraged by the outlook for the business. The foundation we have laid over the past several years and the investments we've undertaken in the first half of 2024 should position Perma-Fix for solid growth in the second half of the year and set the stage for a potential breakout year in 2025 and beyond. We've also trimmed certain costs and have built a highly scalable business model, which we expect will drive very meaningful returns for our shareholders.
All right. On that note, I'll now turn it over to Ben, who will discuss the financial results in more detail. Ben?
Ben Naccarato: Thank you, Mark. Let me start with revenue. Our total revenue from continuing operations for the first quarter was $13.6 million compared to last year's first quarter of $20.1 million, a decrease of $6.5 million or 32%. Revenue decreased in both our operating segments as treatment was down 885,000 as a result of lower volume of waste treated as well as lower average price to -- lower average prices related to the waste mix. In the Services segment, our revenue was down $5.6 million, primarily due to the two large projects which were effectively completed at the end of 2023 and were not replaced by similar sized projects due to the timing of contract wins and delays in start-up of new projects, partly in part from Continuing Resolution impacts.
Our gross profit for the quarter was a negative $620,000 compared to $3 million of gross profit in Q1 of 2023. In both segments, lower revenue had a significant impact on our gross profit with a cumulative total of approximately $2.1 million. And in addition, lower-margin waste/project mixes also impacted gross profit by about $1.7 million. As we've previously disclosed, especially in the Treatment segment, we carry significant fixed costs, which have a big impact on our gross profit when revenue is low. Our G&A costs for the quarter were $3.5 million, which is higher than prior year by $58,000. This modest increase in cost was a result of higher business development costs, which offset lower legal fees and utility expenses. Our net loss for the quarter was $3.6 million compared to last year's net loss of $411,000.
Total basic and diluted loss per share for the quarter was $0.26 compared to a loss per share of $0.03 in the prior year. EBITDA from continuing operations for the quarter, as defined in this morning's press release, was negative $4 million compared to EBITDA of $171,000. Turning to the balance sheet. Cash on the balance sheet was $2.4 million compared to $7.5 million at year-end 2023. Our current liabilities were down $1.3 million, reflecting decreased costs associated with production as well as the timing of vendor payments. Our waste backlog at the end of March was $10.6 million, up from $8.7 million at the end of last year and up from $9.4 million in March 2023. Our total debt for the quarter is $2.7 million, excluding our debt issuance costs, most of which is owed to PNC Bank.
Finally, I'll summarize our cash flow activity for 2024. Our cash used by continuing operations was $4.4 million. Our cash used by discontinued operations, $159,000. Cash used for investing in continuing operations was $244,000, and that relates to capital spending. Cash used for financing was $125,000. This is representative of our monthly payments on our term and capital loans of $259,000 and payments to our finance leases of $75,000, offset by receipts from option and warrant exercises of $209,000. With that, I will now turn the call over to the operator for questions.
See also
20 Best Places to Retire in South Carolina in 2024 and
15 Best S&P 500 Dividend Stocks To Buy Now.
To continue reading the Q&A session, please click here.
