Perma-Fix Environmental Services - Earnings Call - Q2 2017

Transcript

Speaker 0

Greetings and welcome to Perma Fix Environmental Services Second Quarter twenty seventeen Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Natalia Rudman.

Thank you, and over to you.

Speaker 1

Thank you so much. Good morning, everyone, welcome to Permafix Environmental Services Second Quarter twenty seventeen Conference Call. On the call with us this morning are Doctor. Lou Cintasonti, CEO Ben Naccarato, Chief Financial Officer and Mark Duff, COO and Executive Vice President. The company issued a press release this morning containing second quarter twenty seventeen financial results, which is also posted on the company's website.

If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and includes certain non GAAP financial measures. All statements on this conference call other than a statement of historical facts 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 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. Primer Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. I'd now like to turn the call over to Doctor. Lou Santifoni.

Please go ahead, Lou.

Speaker 2

Thank you, Natalia, and welcome, everyone. First, I'd like to say while we've achieved another quarter of positive EBITDA, adjusted EBITDA, we are obviously very disappointed with the revenue from our service segment, which reflects a temporary demobilization of a current project in May as well as the completion of a large commercial nuclear service project, which provided significant revenue in the 2016. It has taken us longer than expected to replace this revenue due to the timing of the new projects. However, our project bidding is significant. Based on historical win rates, we're confident we'll see the benefits of these efforts later this year.

Mark will also provide additional color on our service pipeline and new business opportunities in this segment later in the call. On the other hand, revenue within the treatment segment increased 21% to $9,600,000 and we anticipate continued improvement heading into the second half of the year. Within our Treatment segment, we benefited from higher waste volumes generated by government clients. We expect this trend to continue for the balance of 'seventeen, and we're encouraged by the improved budget for waste treatment within the Department of Energy's Office of Environmental Management. But with the office, we continue to be somewhat disappointed because of the lack of appointments at the Department of Energy and the slowness of appointments.

We are also expanding our international commercial sales effort. At the same time, we're pursuing a variety of major initiatives related to new waste streams and look forward to discussing these opportunities further once we formally commence the work. Turning to our P and L, we continue to carefully manage expenses and identify new areas of cost savings. We're on track to complete the closure of M and EC facility by January, which we believe will save an estimated 4,000,000 to $5,000,000 in fixed costs annually. I'd also like to point out, as previously disclosed, that we freed up $5,900,000 in cash by replacing the closure policy at our Northwest Richland facility with a new bonding mechanism.

With these funds, we were able to pay off our entire revolver revolving line of credit, secure new bonding facility and increase our cash balance at quarter end. Lastly, as we discussed on prior calls, our majority owned medical subsidiary had secured a funding commitment from a potential investor for $10,000,000 due to the fact the investor was unable to close the transaction with the required timeframe and that the no shop provision ended, we provided notification to the investor or intent to seek funding from alternate sources. I'd like to be real clear, this was

Speaker 3

not due to lack of interest by the investor, but rather his inability to secure the full amount of funding for the definitive agreement in a timely manner. We're now in active discussions with other potential partners.

Speaker 2

So to wrap up, extremely encouraged by the outlook for both the service and treatment segment and expect and anticipate improvement in both revenue and cash flow in the second half of 'sixteen. At this point, I'd like to talk it over to Mark Duff, our Executive VP and Head of Operations, and also point out that Mark's under a little stress today. He's with his daughter who had to rush her this morning to the hospital. She's having a baby. So that's going well, and Mark will be talking from the hospital, all the all the good things that are coming here.

Mark? Thanks

Speaker 4

Thanks. We appreciate that. We do continue to implement a number of strategic initiatives to strengthen our offering in both the waste treatment segment as well as the nuclear services segment. Within the treatment segment, this has translated to increased waste receipts at our treatment plants, reflected by the increase in our backlog and high productivity rates in the processing. At the same time, we're adding new treatment capabilities that will allow us to accept new waste streams that will expand our accessible markets and help to further diversify our revenue streams.

While revenue in the Nuclear Services segment was down in the second quarter, we've been able to identify and position ourselves for more opportunities going forward. This quarter, we submitted an additional 10 proposals with annual revenues to firm fix exceeding 10,000,000 in annual revenues. So as I mentioned on the last call, we did not expect to see the full benefit of these initiatives for a few quarters, and several of the larger projects we're bidding on have not yet been awarded. We feel strongly that we will get our service segment back on the growth trajectory, and we believe this segment has enormous growth potential in the coming years. We also continue to expand our geographical reach, including several recent wins in Canada that will support establishing a new office with stronger customer support capabilities.

These wins will further diversify our revenue in the coming quarters. Based on our current pipeline, we remain confident that we will see both top and bottom line improvement in the remainder of 2017 and believe we're setting the stage for sustainable growth for the foreseeable future. I'll now turn it over to Ben Naccarato, our CFO. Ben?

Speaker 3

Thank you, Mark. I'll start with our income statement. Our total revenue from continuing operations for the quarter was $12,700,000 compared to last year's second quarter of $14,800,000 a decrease of $2,100,000 or 14.1 percent. Our Treatment Segment revenue increased by $1,600,000 or 20.6% because of increased volume of waste in the quarter. This increase however was offset by a drop in revenue from our service segment of $3,700,000 about 54.8 percent.

Our service segment is project based and it can vary depending on size and timing of projects. As Lou mentioned, we had a temporary halt of a project in the second quarter of 'seventeen and add this to the completion of a pretty sizable project, commercial project we had in 2016 and that's a big explanation for the drop. For the six months ended June 30, our total revenue sits at $25,400,000 which is up 2.3% from $24,800,000 in the prior year. As with the quarter, the treatment segment revenue has increased has exceeded prior year while the service segment has been comparatively down. Turning to our cost of sales, our total cost of sales was $10,400,000 compared to $13,000,000 in the prior year.

Our treatment segment costs were relatively flat despite the increased revenue. The variable costs were up $338,000 which is consistent with the improved revenue, while our facility fixed costs were also up about $302,000 and this is due primarily to the accelerated depreciation at our M and EC facility which we scheduled for closure in January. This increase was offset by a reduction of about 587,000 of prepaid fees we took in prior year in connection with the intangible impairment charges incurred at M and EC closure. Service segment costs were down about 2,700,000.0 and this is consistent with the lower revenue. On the gross profit, for the quarter we were at $2,400,000 compared to $1,800,000 in 2016.

This is a twenty nine point six percent increase and it can be entirely attributed to the 1,600,000.0 improvement in the treatment segment, which of course as I mentioned is due to increased volume. Our service segment gross profit was down 1,100,000.0 due to the decrease in revenue. Year to date our gross profit improved by 3,200,000.0 as both improved volume and price in the treatment segment contributed to a $4,400,000 improvement in treatment segment gross profit, while the service segment gross profit was down $1,200,000 due to lower revenue. Our G and A costs for the quarter were $2,800,000 which is up from $2,400,000 last year. Main explanation here is in 2016 we resolved a longstanding accounts receivable matter that had been fully reserved and so we recognized the $364,000 pickup.

This pickup, which of course does not repeat in 2017, makes the most of the variance in our G and A. And this explanation also pertains on the year to date basis where we have G and A of about $253,000 higher for the six months ended June 30. Our loss from continuing operations for the quarter was $1,200,000 compared to a loss of $8,100,000 last year. Included in this year's loss are $550,000 and $416,000 related to our Medical segment for Q2 'seventeen and 'sixteen respectively. Our Medical segment wrote off $289,000 excuse me, of legal fees in the quarter as a result of the decision made to notify a potential investor of our intention to seek funding from alternate sources.

In addition, 2016 results included a one time impairment charge and asset write off charge from our MNEC closure which had an after tax impact of approximately 7,500,000.0. Our loss applicable to common shareholders was 1,200,000.0 compared to last year's loss, net loss of 8,200,000.0. Our total loss per share for the quarter is $0.10 and our loss per share in the prior year was $0.71 Our adjusted EBITDA from continuing operations for the quarter as defined in this morning's press release was $586,000 compared to $824,000 last year. For the six months ended June 30, our adjusted EBITDA is $1,400,000 compared to an adjusted EBITDA loss of 1,500,000.0 in our prior year. That's a $2,900,000 improvement.

I'll next turn to the balance sheet as it compares to 12/31/2016. Our cash balance improved modestly as a result of the closure bond transit which allowed the company to free up 5,900,000.0 of cash and was used to secure alternative bonding and pay down our long term debt. Intangibles and other assets were down 6,400,000.0 primarily reflecting the closure bond transition of 05/2009 and the reclassification of a note receivable from long term to current. Our waste backlog was 6,500,000.0 which is up from year end of 5.3 but as important it's significantly up from the 3,600,000.0 in June 2016. Long term liabilities were down 5,100,000 as a result of the full payment payoff of our revolver and the reclassification of our closure reserve at MNDC from long term to current.

Our current debt is 1,200,000.0 which is consistent with year end and lower than prior year by about 261,000. Our total debt at the quarter end was 4,600,000.0 which is all due to our primary lender and the entire 4,600,000.0 represents our term loan balance and reflects the zero balance in our revolver. Finally, I'll summarize cash flow activity for the quarter. Our cash used by continuing activities was $744,000 Our cash used by DISCOPS was $284,000 Our cash provided by investing activities was 5.8 which 116,000 was capital spending. And our cash used for financing was 4,400,000.0 of which 609,000 was used to pay our monthly term loan and 3,800,000.0 was used to pay off our revolver balance.

Operator, I'll now turn the call over to questions.

Speaker 0

Thank you. At this time, we will be conducting a question and answer

Speaker 5

session.

Speaker 0

The first question is from Sam Rebotsky from SER Asset Management. Please proceed.

Speaker 6

Morning, gentlemen. Lou, as far as the inability to finance to close a transaction for the medical area, are we holding back spending money or what's been happening with that piece of the business?

Speaker 2

We have dramatically dropped the spending at Medical. We're continuing to work on advancing the technology through our own development. And we have some other options we're looking at at the moment for people that are very interested in assisting us. So at this stage, yes, we've dramatically dropped funding spending, although the development is continuing of the work with our own facilities and operations. Hopefully in the near future I'll have more to say about We have a lot of we still have a lot of interest in the technology from a variety of people, strategics and funding sources.

Speaker 6

But the development in other words, we've slowed the development stage but because of lack of funding? Or are we in other words, is it postponing that piece?

Speaker 2

Yes. Yes. We're delaying a lot of our outside work. We still have the grant that we're using to fund some work, and we also have still having progress going on in our own labs that are very low cost.

Speaker 6

And as far as your your nuclear business, is the the government is not letting out any contracts?

Speaker 2

No. What we're seeing is we're seeing a lot of potential work coming. As I said, the treatment segment is continuing to do well. Mark, you might want to pick up there on the service side.

Speaker 4

Sure, yeah. We've won a few this quarter. We won a nice contract in Kansas City that has just recently mobilized. And as Lou and Ben both mentioned, we had a temporary demobilization of one of our larger projects in May, and that is remobilizing here in the next week or two. So things are picking up.

They are making awards, but we are still waiting for a number of bids several bids that will have an impact on the company in the future.

Speaker 6

And the significant technology that you've been working on with the government to treat waste in a revolutionary way, how are you proceeding with that?

Speaker 2

Again, that's probably the most affected by the appointees. But I could tell you we're still extremely focused on it. And I'll be honest with you, I've never been in a project that could have more impact on this country than what we're doing. So still very optimistic. It is still somewhat slowed down, but still very positive on it and we see tremendous potential in that.

Speaker 6

And the fact okay. Is there any ability do you see any profitability? When do you see profitability, the way you've been functioning and the way the business is operating?

Speaker 2

Well, think with our medical costs and others, it's hard to predict right now. We're not quite ready to do guidance with the uncertainty on the service side. And so that but, again, we we see positive EBITDA. We see things improving both on the revenue side and on the EBITDA side. And we'll see how the quarter ends in terms of profitability.

But I expect to be much more positive cash flow and the revenue to continue to grow.

Speaker 6

Okay, thank you. Thank

Speaker 5

you.

Speaker 0

Next question is from Anthony Marchese, a Private Investor. Please go ahead.

Speaker 5

Hi, good morning guys.

Speaker 2

Two questions. Hey, Anthony. Hey, how are you? I noticed recently, I guess,

Speaker 5

the last week, the South Carolina assuming the DOE. Are you involved at all in the projects in the cleanup in South Carolina at all?

Speaker 2

The Savannah River plant is one of our main customers. We see that on and off depending upon while they're working. Now I think the lawsuit was was that more with the mocks plant? Or was that Yes. That's more a construction project, and It's the one that and the Vit plants in Hanford, they're consuming a very large part of the DOE budget right now for cleanup.

I guess I'm questioning, is South

Speaker 5

Carolina's action potentially positive for Promethix?

Speaker 2

Unclear. Right now, Congress is very focused on continuing the MOX plan. And for the nuclear business, I always felt that was important in the long run. So I'm not sure. It's really kinda neutral for us at the moment.

Right. Don't think it had much impact at all. Okay. And I guess the second question is, has there been any

Speaker 5

M and A activity in your sector? I know in the past, there's been there's some consolidation in the business. If you could just address that. Is there anything going on in the sector?

Speaker 2

Yeah. There's continued to be extensive that Energy Solutions acquisition of WCS was halted. The Justice Department won their lawsuit against the merger. So you have WCS today on the market, so that's probably one of the big things. The second is you have seen acquisitions over the last year in terms of Veolia buying Curion.

So we we do see activity going on as we sit today. Yeah.

Speaker 5

Right. So I guess the question is, are you a potential acquirer of businesses? Or at this point, do you feel that you have enough on your plate to grow the company organically?

Speaker 2

Well, we're interested in what's going on on the M and A side. And but at this point, our main focus is very much internal in terms of growing our base business, especially the service side. And the introduction of several new technologies, one which we are talking about in terms of a new option to treat radioactive wastewaters. Okay. Final question.

When you mentioned

Speaker 5

earlier that this particular technology is, you know, is potentially going to be employed by the DOE, can you be a little more specific in terms of how the lack of appointments within the DOE affects what you're doing in terms of that particular technology?

Speaker 2

Well, I think the main way, of course, the lack of appointments affect us is that it's hard for the department to make major decisions without guidance when you have major positions open. So it basically coasts along on where it was and tries not to make major changes. So today, the department has several appointments they've proposed. One or two have been approved, but it's really been a hard time them. Terms of our system is the main market we're really going after is on the water side is more commercial and more of the commercial waters.

Speaker 5

Okay. So at this point, without getting specific because I know that they don't want you discussing it, at this point, are you are you finished, so to speak, with what you're supposed to be demonstrating to the government, or is there potentially more to do?

Speaker 2

Oh, no. No. We're we have a lot more to do on some of our newer technologies and what we're doing. No. There's a lot of activity going on on the government side in terms of with some of our technologies.

I see. Okay. Great.

Speaker 6

Thank you

Speaker 2

very much. Yeah. Yeah. Thanks. Okay.

Speaker 0

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Lou Sethavani for closing comments. Over to you.

Speaker 2

I'd like to thank everyone for participating in our second quarter conference call. As I mentioned earlier, we achieved another quarter of positive EBITDA. The revenue within our treatment segment increased 21% to $9,600,000 This growth was offset by a decline in the Service Segment due to completion of a large nuclear service project. However, we're fully confident we'll replace this large revenue and return to growth in our service segment shortly. Heading into the third quarter and balance 2017, we anticipate growth in revenue and improved profitability.

We appreciate everybody's continued support and look forward to providing additional updates in the near future. Thank you.

Speaker 0

Thank you very much. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.