Perma-Fix Environmental Services - Earnings Call - Q3 2015

Transcript

Speaker 0

Greetings, and welcome to the Permafix Environmental Services Third Quarter twenty fifteen Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Waldman with Crescendo Communications.

Thank you, sir. You may begin.

Speaker 1

Thank you. Good morning, everyone, and welcome to Permafix Environmental Services third quarter twenty fifteen conference call. On the call with us this morning are Doctor. Lou Senifani, CEO and Ben Naccaratto, Chief Financial Officer. The company issued a press release this morning containing third quarter twenty fifteen financial results, which is also posted on the company's website.

If 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 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. 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 Doctor. Lou Senofani. Please go ahead, Lou.

Speaker 2

Thank you, David, and welcome, everyone. We've achieved another quarter of profitability and remain on target to hit our guidance of 6,000,000 to $7,000,000 of adjusted EBITDA. Very pleased with how it is evolving with the business and the company. Now that we've streamlined and stabilized the business, our focus now is almost entirely on growth. We're encouraged by the outlook for both treatment and services.

Turning first to the service segment, happy to report revenue increased 53.4% compared to the same period last year. This growth indicates we're winning more work. Contract awards appears to be picking up. As an example, we were recently awarded a contract valued at approximately $1,000,000 for demolition and decommissioning services at a technology development lab in Knoxville. This is an example of one of the smaller contracts we've been on and were awarded.

Many of the smaller contracts we don't announce. But as I mentioned in the past, we're also bidding on a variety of larger contracts that could have a significant impact on the business and hope to be able to talk about those more in the near future. Within the treatment segment, revenue declined to 10,900,000 from $12,700,000 for the same period last year. This does not reflect a weak third quarter of 'fifteen, but rather an extraordinary one in 'fourteen as we received and processed waste from our project acquired a rapid turnaround resulting in higher revenue in that one quarter. Nevertheless, our sales pipeline remains healthy as we head into '16.

The opportunities outside of DOE continue to be encouraging as we continue to focus on commercial, international that will help us diversify our revenue from DOE. I'm pleased to report some very positive developments on the medical side. As you know, we recently announced completed another successful scale up of our process which confirmed our proprietary resin could withstand high radiation levels up to six curies. We believe we're now very close to overcoming nearly all technical hurdles related to the resin. We received positive feedback from the industry and in active discussions with many of the key players.

As previously announced, we finalized our agreement with Digirad whereas Digirad invested $1,000,000 into our subsidiary, Permafix Medical, which is listed on the Warsaw Exchange. I would point out that they invested at a significant premium to the current market price, which is further illustration of our growing interest in our process from within the industry. And also that we do not believe the price in the Warwickshire Exchange really represents the true value of the technology. As part of the agreement with Digirad, they will purchase agreed upon quantities of TEK99M for its nuclear imaging operation upon successful completion and development of the process. We are currently in discussions with a number of prominent companies involved in other areas of supply chain for TEK99.

At the same time, our main goal now is really finalize our strategy for the U. S. FDA and European medical agencies and are now accelerating our testing for FDA requirements. And we'll provide further updates on this in the near future. So to wrap up, we remain very confident in our prior guidance for the full year.

And while we're pleased with the results, we are far from satisfied and we'll continue to focus on growth opportunities in 2016 based on the sales pipeline within the service segment and opportunities within treatment. As we look ahead, it's still early, but when you look at our from 'fourteen to projected 'fifteen, we have seen our EBITDA and adjusted EBITDA grow approximately 100%. In 2016, we expect to see a 50% further growth in adjusted EBITDA on continued revenue growth in 2016. With that, I'd like to turn the call over to Ben, who will go into more details on the numbers, then I'll be back to answer any questions at the conclusion of the formal remarks. Please go ahead, Ben.

Speaker 3

Thank you, Lou. Beginning with revenue, our total revenue from continuing operations for the third quarter was $17,300,000 compared to last year's third quarter of 16,900,000.0 an increase of $404,000 or 2.4%. Revenue in our Services segment improved by $2,200,000 as a result of increased commercial work. This was mostly offset by the reduction in the Treatment segment of 1.8 as waste received in the 2014 had a short processing deadline, which resulted in more waste being processed in the quarter. When you look at year to date, our revenue is greater than prior year by 7,200,000 or 17.8% as both of our segments have increased compared to prior year.

Turning to our cost of goods sold, total cost of sales was $12,400,000 versus in the third quarter versus $11,300,000 in the prior year. Our Treatment Segment cost of sales decreased by $592,000 or 7.6% compared to prior year, while our fixed facility costs remained relatively constant, variable costs went down as a result of the lower revenue. In our Service segment, our cost of sales were up $1,600,000 as the variable costs related to the increased revenue increased as our and our fixed overhead expenses were down slightly. Our gross profit for the quarter was $4,900,000 compared to $5,600,000 in 2014, a decrease of approximately $635,000 Gross profit in the service segment increased by $612,000 compared to prior year as a result of the increased revenue. And of course, the increase was offset by a drop in the treatment segment of $1,200,000 as a result in the drop of revenue there.

Again, year to date, our gross profit as of September 3035 is higher than the prior year by CAD3.2 million or 44.6%. Both segments have achieved increased revenue while maintaining their fixed operating costs, which has contributed to the improvement in the gross profit and the gross margins. The G and A for the year, total G and A for the year for the quarter, excuse me, was CAD2.9 million compared to CAD2.7 million last year. Higher marketing costs primarily related to increased bidding activity is the main reason for this increase in the third quarter. Again, when we look at year to date, our G and A expenses were 8,700,000.0 compared to $8,900,000 in the prior year.

Lower payroll expense has been primarily offset by higher third party consulting costs accounting for this variance. Our income from continuing operations for the quarter was $1,300,000 compared $2,400,000 last year. And these results include $527,000 spending by our medical isotope and $229,000 in prior year. Net income attributable to common shareholders was $1,100,000 compared to last year's net income of 1,900,000.0 Income from the quarter concludes $364,000 again, which represents our portion of Permafix Medical expenses. Our earnings per share from continuing operations was $0.12 a share compared to $0.20 per share last year.

And at the year to date level, our earnings is currently at $01 per share, but this compares positively to the loss per share of $0.32 last year. Adjusted EBITDA from continuing operations for the quarter, as defined in this morning's press release, was $2,900,000 compared to $3,800,000 last year. Year to date adjusted EBITDA from continuing operations currently sits at $4,500,000 compared to $1,200,000 in 2014, an improvement of $3,300,000 On the balance sheet, compared to our year end, cash is down $1,700,000 primarily due to the operating cash requirements from losses incurred in the first quarter, but offset by positive cash generated in the second and third, and $1,000,000 raised by our Perma Fix Medical facility. Our total receivables including unbilled are down 1,300,000.0 mostly due to improved billing of unbilled and improved collections. Our waste backlog is at $5,000,000 compared to $9,200,000 at the end of the year and $10,700,000 a year ago.

Current debt sits at $3,600,000 compared to consistent with the $3,700,000 at year end. And our total debt is down, it's $8,900,000 compared to 11,400,000.0 at year end. And it's made up of $7,500,000 from our credit facility at PNC, our shareholder loan of $1,300,000 and miscellaneous loans of $29,000 Finally, I'll summarize our year to date cash flow as of September 30. Cash provided from continuing operations is $1,500,000 Our cash used by discontinued operations is $1,200,000 Cash used for investing is $291,000 of which $338,000 is actual capital spending, but we had some proceeds from equipment and the final escrow from a facility sale last year. Cash used for financing was $1,600,000 Of this $1,600,000 this includes debt payments of approximately $2,600,000 and that's offset by the equity raise at our Perma Fix Medical facility of about $970,000 With that, I'll now turn the call over to the operator for questions.

Speaker 0

Thank you. We will now be conducting a question and answer session. Session. Our first question comes from the line of Al Keshak with Wedbush. Please proceed with your question.

Speaker 4

Hey, good morning, guys.

Speaker 2

Good morning, Al. Good morning, Al.

Speaker 4

On the medical side, Lou, you gave us sort of the progress to date. What's the next in the near term, next three to six months sort of the commercial visibility or or progress, should we say, to to getting it the next couple of steps? Investments need to be made, trials, etcetera. Thanks.

Speaker 2

The the main is we're very focused today on there's a variety of smaller tests that will be required for FDA submittal in terms of very basic data that they will ask for. And so we're going through a variety of tests today with our FDA consultants in terms of what is needed and preparing really for what will be our first sit down with the FDA in probably, you know, the first of the year to go over our process, our data and how it should be submitted and considered. So right now it's basically develop continue to develop the data needed and two, looking at ways to further focus the technology in terms of for our commercial unit. But we're really excited right now. We see a path forward.

Data has been very good and we're very pleased with the results. So but that's our main internal goal right now is looking at data generation for what will be needed and a path forward with, the regulatory agencies.

Speaker 4

Yeah. And on this path forward, is there further strategic, partners, or when when do we take another step on that regard in terms of either announcement, or is Digirad that partner and more

Speaker 5

more partners?

Speaker 2

Digirad was a general adviser advisor on the industry in helping us focus. Right. The we're in discussions with a variety of potential partners several of those would involve assisting us from a medical point from the regulatory point of view. So I can't really say at this point when we'll we'll have more to say about that, but, those discussions are very active right now going on.

Speaker 4

Okay. On the, on the treatment side, I mean, I guess there's a little, yes, we had a tough comp. Still seems a little bit lower than maybe where things would like. What have you seen in terms of the with fiscal year end for the government, the September push, why is backlog sort of where $5,000,000 level as opposed to a bit higher?

Speaker 3

Know, Val, the push probably wasn't as aggressive as we've seen in the past, but the backlog has got sort of a different twist to it than what you normally see. We've talked about and the fact we've given guidance is because we have some visibility on some waste streams and projects. And our backlog is actually somewhat managed by our license right now. We've got a pretty good visibility for some things coming hopefully into next year. And because of our license, we have to manage when that comes in.

So believe it or not, for once we're actually telling them to hold on, and that's reflected in the lower backlog. But that just means we're anticipating more sort of a flatter receipt schedule than we've usually had in the past where, as you know, kind of fourth quarter, first quarter falls right off the table. So we're not overly concerned because we have some sort of commitments that will sort of make up for that lower backlog.

Speaker 4

Okay. So that gives you confidence on the 15,000,000 number. And therefore, given this timing and managing the process, you're able to, for lack of better words, slot for 50% growth in EBITDA for 2016. I assume the majority of that is because of this backlog composition.

Speaker 3

Yes. Well, the service growth has a lot to do with it too. But yes, that gives us a lot more confidence in our treatment numbers, which as you know, our treatment numbers is the profitability, the service numbers is kind of the revenue side growth.

Speaker 4

Okay. And then just a broader comment, Lew. A lot of the industrial companies are, I won't say inconsistent, but there's certainly some spotty growth and some more less constructive comments about waste streams. Despite the diversification efforts, are you seeing more opportunities or more customers delaying projects that diversification process may not be as robust in the near term?

Speaker 2

Well, we have suffered over the last three, four years with seeing because of the problems the nuclear industry had both at DOE and then on the commercial side. And and, you know, the the so what I what I I see is that there is a lot of now pent up demand. You can only avoid, following the rules for so long, and then you have to start moving waste. So what we're seeing I think is we went through that two, three years ago and we're now past it and the pent up demand is there and there's a lot of projects that are developing and there are a lot of opportunities. What we're really seeing right now is a lot of new issues cropping up in the nuclear field that are requiring our efforts in technology and services.

We think we've seen that happen in the past and when that happens they may talk about we can delay this for a while, but it's usually about a year or two and then it catches up with the companies.

Speaker 4

Right. Okay. Very good. We'll look forward to

Speaker 3

it. Yep. Thanks, Al.

Speaker 0

Our next question comes from the line of Vernon McCreery with Stockbroker Club. Please proceed with your question.

Speaker 6

Hello, and, thank you for letting me on the call. I'm quite new, to the company, but I'm phoning from Toronto. One of the questions we have in in Canada is the concern with chemotherapy with the isotopes at Chalk River being sort of stalled and stopped from time to time. I'm wondering if you care to talk about how soon you can get to that market and what do you think the size of the market might be?

Speaker 2

Well, we see a fairly dramatic market. As I wish I could tell you, we will be available by the time Chalk River closes. But from a realistic point of view, I don't see that being possible because you're probably going to see Chalk River dropping off either next year or under the best scenario in 'eighteen. So now I think to you know, what we see is that in the interim there's the industry has done a variety of things to to to have backups. So you'll you'll see a supply.

Now with respect to ours is that we're really looking at a you know, that probably being realistic getting to FDA in sometime next year and then a year after that with a commercial product. And Canada would be an ideal market for us because it is a very diffuse market and we see some advantages there. So but over the next and the market size is immense. Selling what the product we would be selling, you're talking about several $100,000,000 market in Europe and The U. S.

When you look at it very simplistically from just if we only sold Tech 99. So we're very excited about our technology. Think and and we could play a major role. Our technology just brings with it sort of ideal conditions from a big picture point of view, and that's the real advantage we have. And now we just need to fill in all the little details to try to get it approved through the regulatory agencies and then figure out how to distribute it.

So but we're really excited about the technology.

Speaker 6

Can I just ask an add on then? Sure. You mentioned that if you just produce the basic item market might be a few 100,000,000. Do you have plans to do something like a value add on or market it in a way where there's quite a larger revenue stream?

Speaker 2

Well, the advantage of this technology that I've always seen is that it's a disruptive technology and that it could totally change how the industry behaves and what it does. So that is very possible. And so you know, the market itself around the world is a $6,000,000,000 market with half of that over half of that in North America. So it is a dramatic market with a variety of services that could be added on in time. So yes, it's tremendous opportunity.

And, you know, today it's the heart of diagnostic medicine and without it, it's be a fairly dramatic effect on diagnostics and also on the chemo side and other sides of the business.

Speaker 6

What's your R and D size and on this project?

Speaker 2

Well, we're a small company and it's almost embarrassing to tell you because when I tell people in the medical field what we're spending, they find it hard to believe the progress we've made with what we have. Ben, what was it? Yes, we're spending today about $05,000,000 a quarter. And I could tell you that everyone else we're competing with is spending in the tens of millions of dollars. So but we've made tremendous progress on what we have.

And and our our spending will increase in in in '16. It's going to go up as we get into some of the more highly medical requirements.

Speaker 6

So if you had more money, you could spend it in the R and D field?

Speaker 2

We could accelerate our development and growth if we had more funds,

Speaker 3

yes.

Speaker 2

Thank you for this. Our

Speaker 0

next question comes from the line of Sam Rebotsky with SER Asset Management. Please proceed with your question.

Speaker 2

Yes. Good morning, Lou. Hi, Sam. How are you? Okay.

Now the Permafix Medical, the Polish company, I believe it's been trading in Poland for close to two years. Could you sort of give the metrics of what the high and low the price it's traded at? And what price Digirad has paid for their interest? And is there any thoughts about listing this company in The U. S?

Do we think that we'd get a better valuation if we did that? First the last the question to your or the answer to your last question, yes, we're very interested in listing it into The U. S. Because we would we think we would have a better valuation. The stock has traded on a for approximately $10 It's been higher and it's been a little lower.

I think the Digirad price was I think 14. Yeah, it was about $14 And, you know, in fact that's We would not sell stock today at any of these kind of prices on the open market. So we think it's not being anywhere near truly valued. So So so does it make sense? I'm I'm not sure whether, you know, to list it on the bulletin board or do we wanna wait for Nasdaq or what is our thoughts on a time frame to start trading the stock?

As you make more progress in getting the products forward, and get some kind of approvals, there would be more interest I would think in creating a greater value for this company which would then increase the value of Perma Fix if there's a realistic price. We've looked at all the various options. One and one is an up listing on the bigger Warsaw Exchange which would dramatically improve the liquidity and the ability of investors to buy it in Europe. And then we've reviewed all the various options for U. S.

You know, I'd probably say by the end of next year, about twelve months, we we would it'd be clear on where we're going from a, an option point of view with the, the stock in the company in Warsaw.

Speaker 7

Okay.

Speaker 2

So so at this point, you wouldn't be listing in The US for at least another year or or presumably you'd up list it first in in Warsaw even though you feel there's a greater valuation. Might you if if you got some approvals, would that encourage you to do something sooner, or is that what you're waiting on? Well, there's a variety of things we're we're waiting on. We're reviewing all of them and and all the various options. And and we have a variety of of strategic partners that would be interested in working with us one way or another.

So really the change in listing or bringing it back to The US would also depends on what, how we work with the various strategic partners.

Speaker 7

Okay.

Speaker 2

So that also comes into play on all of this. You know, doing a NASDAQ listing today is we're not sure that's quite right but probably by the end of the year it could be could make a lot of sense. There are other, you know, less significant markets in The U. S. We could list it on but we're not quite sure what that would bring us.

So and the cost and effort, you know, would probably be the same as doing a Nasdaq listing. Okay. So right now our our thoughts is to give it a little more time, maybe move ahead with the Warsaw and while that's going through then you'd almost preparing the same documents that would be required for the NASDAQ. So we're we're we've looked at like I say, we we've laid out the the path for for every possibility right now. Okay.

Now as far as your the nuclear and your other contract business, what type of bids do you have out there? Is there a dollar amount? Do you have more bids out there than before? Your backlog doesn't seem to be moving up, but do you have more bids? Is there is is there any more money that the government is is gonna be putting out or do we are we waiting on something from the government?

Well, I think as as we sit today, you've seen our numbers on services are growing significantly especially in the commercial and side of our business. And we're seeing more opportunities than we've ever seen. And the schedule for bidding over the next two, three years on the DOE side is going to be pretty significant for large contracts, very large contracts. Now there we would have in most of those cases we'd be on a team or a subcontractor to a team. So but we we've got a lot of bids out.

In fact, our our our opportunity list is as big as it's ever been. I'm pretty confident we're we're going to win some significant projects. And, I I see the bid opportunity just continues to increase. And and really it's increasing on the small to medium, which has always been our bread and butter. So like I said earlier on the earlier question is there's been a lot of projects somewhat delayed.

The commercial side, we we actually see, pressure building for for people to do things, and we see a lot of new opportunities. So so what Lou, I don't seem to understand. Is it does somebody need a goose whether it's money to be put in the system for for they allocate and and commit the projects? Is it the federal government requiring companies to do things? Is it the federal government doing things?

Is there additional money in a budget that's required to sort of get it off, you know, to really grow? All the above. We're seeing we're seeing actually all the above. You got the commercial side. We there's pressure on a variety of major industrial companies in the mining business and the gas business.

There's the fracking has produces a tremendous amount of waste and it's causing issues and opportunities for us in the commercial side and in the government side. We're seeing lots of work. And remember, the problem we have is none of these things when they do them, we have to bid on contracts. Our clients don't like us talking about them and don't like us announcing things. So we're we're we're a little hamstrung in sometimes telling you until after the long after the fact on on what's going on.

So but as we sit today, we're seeing international, we're seeing commercial, and we're having, we think, good success on being on good teams and, and teams that are that should win. Alright, Lou. Hopefully, you could, get these contracts and start reporting the numbers. I hate to sort of dance on your question, but I'm somewhat limited in in how I can talk about what's really going on with our clients if you this business. Thanks.

Good luck. Thank you.

Speaker 0

Our next question comes from the line of Justin Putman with Talanta Investment Group. Please proceed with your question.

Speaker 7

Good morning. My first question is, what are your expectations for the isotope R and D expenses going forward? I think you said you were running about $05,000,000 right now, but you're expecting that to grow?

Speaker 3

Yes. We think that number is going to go up. We're working those numbers today, but you could probably expect probably about a 50% increase just without anything else dramatic happening. We're sort of a little bit reactive to the circumstances where we're at with the planning. But as a rule right now, you could probably use a 50% increase on that starting in the New Year.

Speaker 7

Okay. And then my second question, Lou, guess this is for you and you kind of danced around this a lot as well, but I was just curious to know if there are any so the FDA process approval is obviously a big step for your medical isotope program. But are there any other revenue opportunities maybe even outside The US prior to that to receiving accreditation?

Speaker 2

With the medical project?

Speaker 7

Yes.

Speaker 2

It's, you know, any country you go to will require, governmental approval and most of them will require actually, most of them will look to the FDA as the leader. So the once you have FDA, then it's become semi automatic in in some of the smaller countries. The now the the medical isotope has led us to a variety of other opportunities that are it's that we're chasing. So in one way, it's it probably will pay pay off in the development of our our technology base. So we're seeing that.

They're bringing to us a variety of other issues especially with our resin technologies that could see revenue much sooner than we'd ever see with Medical. So as we sit today, we've actually been excited about the how it is leading us to other opportunities in technology on both on the waste side and on on the use of our resin technologies.

Speaker 7

Okay. So for example, with that Digirad deal, they're they agreed to purchase certain quantity of the Dipyto. Is that correct? But that's still dependent on FDA approval.

Speaker 2

Oh, absolutely. Yeah. Yeah. They can't use it without that approval. So all those things are really subject to us being able to get through the FDA.

Speaker 7

And have you disclosed how much they've agreed to purchase? Is it

Speaker 2

they are one of the largest consumers in The US. I don't remember the exact number. Yeah. There's no limit on what they can purchase. But they are the largest consumer of TEK ninety nine in The US.

In fact, they've just bought another distribution system for that now almost will make them a very significant much larger significant user. So I don't remember the number, but they are a very large consumer.

Speaker 7

But no limit, but no minimum either. Right?

Speaker 2

Our production limit. Yeah. Mean, right. Exactly. It's more our production limit that would limit the availability.

So if if we can produce it, they will buy it.

Speaker 7

Okay. Okay. And then last question on that. So they currently own 5.4%. Is that correct?

Correct. Of the Perma Fix Medical in in you own $60.60.5. Is that correct?

Speaker 2

Correct.

Speaker 5

Mhmm.

Speaker 7

And then the remainder is just public float?

Speaker 2

Correct. Yes. Two several funds in Poland and a small public float.

Speaker 5

Okay. All right. Great.

Speaker 7

Thank you for taking my questions.

Speaker 0

Our next question comes from the line of Bill Chapman with Morgan Stanley. Please proceed with your question.

Speaker 2

Hello, Ben. Good morning. Bill. Hello. Let me ask on the plants that are producing the tech 99 that and they're also in the business of selling generators, I believe, like Australia or South Africa, if I remember correctly.

How do we approach them on using the resin? We're talking to pretty much all of them, and it would be for a variety you know, they they all see some value in in what we're doing. And and so there's been a variety of discussions with everyone. You know, the it it sort of goes to what their their goals are, what they're looking at, how they wanna grow. And so there's a variety of approaches each of these companies have taken in terms of our discussions.

And so but we see opportunities right now with everyone. In fact, the the we're somewhat drowning in opportunities with what makes the best sense. So as we look at the industry today, we're real excited about our position where we are and how we can help several of these people really grow their business. And it's everything from using their generators, putting our resin in it to developing a new generator that would be used in selective markets that they can't compete in today. Okay.

Well, the let's see. You're you're going to them, they're using high high high rich uranium or low rich, I presume. And so you can offer a much lower cost Much lower cost, a simpler production way, more you know, they they the uranium systems require a highly centralized production distribution system whereas our technology could be done in a in a more distributed diffuse production distribution system. So you make the whole chain more reliable. You make the whole chain closer to the users.

So there's some tremendous advantages that we could offer that our technology would offer. Okay. Well, thank you very much.

Speaker 3

Alright, Bill.

Speaker 0

Our next question comes from the line of Michael Potter with Monarch Capital Group. Please proceed with your question.

Speaker 5

Hey, guys. Just a quick question on something you discussed earlier was that our license or the license that we have in some way did not enable us to bring in some wastes from the government this year that we have to wait till next year? Can you give us a little bit more detail on that?

Speaker 2

Yes. What it really the all our facilities have limits on the license. You can only have so much enriched uranium, plutonium, or certain radioactive isotopes. And so when our clients especially DOE has large quantities of of certain materials that have these limiting isotopes, then we just have to plan the arrival. And but you can only have so much on-site, we have to bring the waste in, treat it, then get it out the door before we can accept more.

So this is a it's a common limit we've had, you know, in in so today, we we do a lot of very high activity materials and very specialized materials, plutonium, do a lot of transuranic waste. All of those have some significant limits on how much you could have on-site. And so that we then have to manage in and outs to avoid having problems with our license.

Speaker 5

But but even even though we're limited on what we could have on our on our site, don't we still have the work order? Or are they not issuing the work order until we're able to accept delivery?

Speaker 2

No. We have the work order, but we can't accept the waste, correct.

Speaker 5

So we have the work order. So wouldn't that be in our backlog?

Speaker 2

No.

Speaker 3

No. Michael, our backlog has always been sort of an unearned revenue number. It's waste on-site that has been received but not yet treated.

Speaker 5

I see.

Speaker 2

And you need to remember that we work off of, our contracts, are open ended and so that they will give us a work order under that contract and say we have this much. But until we receive it, there's no guarantees that they will actually send it. Now they said we got a 100 drums of this material. Can you start taking it? And we said, we'll take it over the next, you know, five months.

So so it works that way, but it you can't recognize it because there is still limits in the contract that they could change it anytime they want.

Speaker 5

Well that's always the case, right? Which is always It's always been historically. It's always the

Speaker 2

case, correct. And

Speaker 3

in some cases, the customer must get it done So we have a little more confidence that they won't pull funding versus other times Right. But we still wouldn't recognize. Yes. But the backlog is truly an unearned number.

Speaker 5

Okay. Can you give us a sense of how large a piece of business this is that should be coming in at the beginning of the year?

Speaker 2

Well, I mean, it's spread out. I mean, we have several contracts I mean we have several commitments with some of the DOE sites where they have to move especially like in out of Hanford they have requirements. They have to move a certain amount of material under their new rules with the DOE in the state. That pretty much guarantees we're gonna get 5 or $10,000,000 a year out of them. So but that's the kind of thing we see.

We have they have requirements and we're the only option and they'll be sending us that amount over the next year. So that gives us a pretty strong you know, we usually don't have that kind of commitment.

Speaker 5

I'm gonna answer your

Speaker 2

question, but it's it's it's a nice steady number.

Speaker 7

Mhmm.

Speaker 2

I think So so the

Speaker 3

best way to answer it, Michael, is we rarely have a commitment that can't be pulled off the table. And this one, though it still can, put more pressure on the generator to to get that out and have five to 10. So it's almost like we rarely have anything guaranteed and we sort of have a pretty good comfort level for, you know, five to ten million.

Speaker 2

Okay.

Speaker 5

And I'm assuming that is the main factor that gives you guys confidence in the guidance for 2016 of 50% increase in adjusted EBITDA?

Speaker 2

Well, that plus we're just seeing a lot of opportunity. That's one and that's great to have, but it's really a the amount of opportunities we're seeing on the commercial and on the international and on the and then on the governmental side is looking very positive right now. So we see a lot of opportunities.

Speaker 5

Okay. There's a recent article in the Wall Street Journal a few days ago within the past week on the issues that the DOE is having managing these sites and a lot of the waste that's been built up and and and their budget issues over the past few years and all this kind of good stuff that we've known for a long, long time. Can you you wanna add any comment to that, Lou?

Speaker 2

Well, deja vu. It's in my old speech. I mean, there's so much waste out there, especially at DOE, especially at Department of Defense, especially at the, you know, the commercial sites, the Corps of Engineers. I mean, it just I could go on and on. And then and so, you know, there was a lot of discussion in that article, a lot about what's going on in California at the national labs.

We're in the middle of that right now with our service group. We're running the health physics work out there. So we're in the middle of all that, and that just goes back to what we see is, you know, we we have on our service side a probably the premier group for health physics and managing the radiation control at sites. So that group is really blossoming right now. And with it is coming a lot of work.

It's leadership work. They're highly technical. We're fitting well with the our treatment group. And we're seeing that all bloom right now. So it's a good place to be where we are.

We just see that there's there's a need in the nuclear industry for more leadership and more technical approach, and people are coming to us for that. So

Speaker 5

Okay. All right, guys. I'll get back in the queue. Thanks.

Speaker 7

Thanks.

Speaker 0

Our next question is a follow-up question from Sam Rebotsky with SER. Please proceed with your question.

Speaker 2

Yes, Lou. One question I didn't ask. As far as the Polish company, how many shares are outstanding? You said it's trading around $10 and DigiGrad paid $14 We own 60%. What is the total number of shares outstanding that that are in the that are that are tradable?

Approximately 1,300,000.0 shares. So 1,300,000.0 shares. Okay. So that's a valuation of 13,000,000 plus for that. Okay.

Is it helpful to have that information more readily available in the financial data that we put out? Well, since it's totally consolidated, it somewhat shows up but not in terms of the value on our balance sheet.

Speaker 3

Generally, they are a subsidiary of our company. We're really our financial data represents Permafix and that includes the value of that is presumably in our stock price and Well, in our

Speaker 2

at this point in time, the 13,000,000 to, you know, plus valuation and if you're successful in accomplishing what you're trying to do, this would have a greater valuation than is reflected in Permafix. You reflect book value and not the market valuation. All right. Hopefully, you're successful sooner than later. Thank you.

Speaker 0

Next question comes from the line of Bill Naskowitz with Heartland. Please proceed with your question.

Speaker 5

Morning.

Speaker 2

Good morning, Bill.

Speaker 5

Lou, what was your estimate of EBITDA for this year?

Speaker 2

Six to seven. Okay. Thank you. We

Speaker 0

have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Speaker 2

Once again, I'd like to thank everyone for participating in our conference call. With another quarter under our belts of sustained profitability, I can say confidently we've turned the corner. We're now on track to hit our guidance of 6,000,000 to $7,000,000 and encouraged by our prospects heading into the New Year. We're pursuing several large contracts in the service segment, which we hope to announce soon and see a growing number of opportunities within treatment. Very excited about our medical subsidiary based on the interest we received from the industry and are now finalizing plans for the FDA and look forward to providing you updates.

Thank you all for participating and look forward to the next call. Thank you.

Speaker 0

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.