Perma-Fix Environmental Services - Earnings Call - Q3 2016
November 18, 2016
Transcript
Speaker 0
Greetings, and welcome to the Permafix Environmental Services Inc. Third Quarter twenty sixteen Investor Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Natalia Revin of Crescendo Communications. Thank you. You may begin.
Speaker 1
Thank you, Christine. Good morning, everyone, and welcome to Permafix Environmental Services Third Quarter twenty sixteen Conference Call. On the call with us this morning is Doctor. Lou Santifanti, Chief Executive Officer Ben Naccarano, Chief Financial Officer and Mark Dopp, Chief Operating Officer and Executive Vice President. The company issued a press release this morning containing third quarter twenty sixteen 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 other than the statement of historical fact are forward looking statements that are subject to known and unknown risks, uncertainties and other factors which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings within the U. S.
Securities and Exchange Commission. The company makes no commitment to disclose any revisions to forward looking statements or any facts, events or circumstances after the date hereof that bear upon forward looking statements. With that out of the way, I'd like to now turn the call over to Doctor. Lou Santiponte. Please go ahead, Lou.
Speaker 2
Thank you, Natalia, and welcome, everyone. First, I'd like to say we've been very disappointed with what has happened to our ongoing business, both in the quarter and the year. Looking back at the start of the year, we had orders that indicated we're in store for a very good year. What we have seen though has been a large number of shipments that were delayed and unanticipated spending constraints at the federal level. This, was not unique to us as it affected, all our peers in this industry as well.
Even though our budgets even though budgets were not reduced, work programs were put on hold until after the election. Because of this, it's been a very trying quarter and year. So again, we had to go back to our lender for waivers, which were approved, but it has delayed our financial reporting. However, as we look ahead, we believe we've gotten through most of the unanticipated macro events and are optimistic about the outlook for the New Year. We have begun to see waste that was delayed begin to ship and expect to see improvements in the fourth quarter.
As a result, our currently anticipated adjusted EBITDA for the 2016 will be approximately $1,000,000 Now as we look ahead, again, we continue to be very good reason to be excited. First and foremost, the project that I get the most questions about is, I returned last night from spending a week at Hanford. Pleased to report we are near completion of the previously announced demonstration project related to the treatment of high level waste. And again, expect that to have to be totally completed by the end of the year. This would represent our first foray in the high level waste treatment and I can't emphasize enough the revenue potential from this project, which could eclipse anything we've done in the past.
We are on track to complete the initial demonstration, as I said, in the coming weeks and look forward to providing additional updates in the near future. In addition to the sheer magnitude of the opportunity, our customer is motivated. Not only are we able to provide the customer a practical path forward to treat this waste, but the cost savings from our process versus any other alternatives are staggering. I would add one comment is that we are breaking a lot of new ground. And there are a variety because this is a whole new approach, there are a variety of institutional barriers that we must continue to overcome for this project.
But we're very optimistic and think we can. Turning to the Service segment. We experienced some weakness as contracts ended. However, new projects have begun and we're rapidly building our sales pipeline, especially due to the large part to the tremendous efforts of Mark Duff, who recently joined as Executive VP. In fact, I'd like now to turn the call over to Mark, who will provide some further insight into where we are with in our business development efforts.
Mark?
Speaker 3
Great. Thanks, Alu. Perma Fix does remain optimistic regarding growth over the next several quarters due to several changes in near term objectives of our clients as well as reorganization overall of our business development programs. There's an immediate trend in the government sector that we've seen over the past few weeks that include the need to increase the movement of waste that remained in storage over the past year to address their objectives, which focus on labor stability as a direct result of the upcoming election. Our government clients are now shifting focus to spending on non labor objectives, including waste dispositions over the stored waste that will directly impact our treatment facilities over the next six months.
This includes the potential for increased inventories and processing. We're starting to see that shake up just in the past few days actually. In our nuclear services sector, we've seen a rapid increase in procurement opportunities both in the government and the commercial sectors as a direct result of some of the changes we've made and enhancing our business development program. And we've seen growth opportunities through ongoing procurements and remediation, radiation protection consulting and teaming opportunities with larger firms that have not previously recognized the Perma Fix discriminators and what we actually bring to teaming for some of the larger projects that have come up in the government sector. While these procurements can often take several quarters to recognize wins and the associated revenue.
We've seen several immediate new opportunities from sole sourcing in both services and waste treatment that will impact our revenue in the next two quarters, which will likely drive us to meet or exceed our plan. That's kind of a summary. Alu, I'll turn it back to you.
Speaker 2
Thank you, Mark. As our initiatives within both services and treatment begin to take hold, we continue to look at all aspects of our business to identify areas of cost savings. Previously announced, we are moving forward with the closure of our M and EC facility in Oak Ridge, Tennessee. We're relocating certain equipment, shifting certain specialized capabilities to our other facilities, which will allow us to easily reroute waste streams with minimal impact to revenue or disruption to our customers. This closure, we estimate, will save us 2,000,000 to $3,000,000 annually in fixed costs and should help significantly in our bottom line.
Turning to our medical subsidiary, very pleased to report we've entered into a as you know, a letter of intent, private investor, subject to execution of a definitive agreement, to purchase $10,000,000 of preferred shares in Permafix Medical with an option to invest an additional $10,000,000 through the exercise of warrants. We believe this investment will provide us necessary financing to execute our strategy through commercialization of the TECH 99 ms technology. In fact, the transaction will be nearly twice the current share price of our subsidiary on the Warsaw Exchange further illustrates the confidence this investor has in the technology. This cash infusion will help us significantly accelerate activities leading up to and beyond submission of regulatory filings. And also the cash infusion combined with the new management team consisting of Steve Belcher and John Klimico will allow senior management of environmental to now focus 100% of our time and energy on the nuclear waste business.
As part of the medical, as you've also seen, were pleased to see that we were issued another patent for the Eurasia market, which could represent an attractive market for our technology. So to wrap it up, this has been a very difficult year for the reasons mentioned earlier, unanticipated and an industry wide phenomenon. Nevertheless, strongly believe we're back on track. With Mark on board, we see a significant opportunity in the Services segment and the overall, our low level mixed waste business. We are on the cost of completing a demonstration project to treat a small quantity of high level radioactive waste.
This would be a monumental achievement on a Perma Fix for the industry as a whole since it provides a viable cost forward path for streams we're focused on. With that, I'd like to now turn the call over to Ben, who will go into more detail on the numbers, then I'll be back myself and Mark and Ben will
Speaker 4
be back to answer questions at the conclusion of formal remarks. Ben? Thanks, Luke. Starting with revenue. Our total revenue from continuing operations for the third quarter was $12,900,000 compared to last year's third quarter of 17,300,000.0 a decrease of $4,400,000 or 25.4%.
The decrease was a result of revenue shortfalls in both our operating segments. Our Services segment was down 18.1% as a result of timing of the ongoing projects during the quarter. The larger shortfall came from the Treatment segment where revenue was down 29.7%. As Lou mentioned earlier, we continued to see delays in waste shipments primarily from our government customers. Turning to cost of goods sold.
Our cost of sales was CAD11.1 million for the third quarter compared to CAD12.4 million in the prior year, a reduction of CAD1.2 million or 10.1%. In the Treatment Segment, cost of sales were down CAD364000, primarily from the reduction in variable expenses from the lower revenue and offset slightly by a small increase in our fixed facility expenses of CAD98000. Cost of sales from our Services segment were down CAD85000 with the variable expenses relating to the lower revenue of CAD811000 and also lower fixed expenses of CAD74000. At the gross profit line, the quarter was CAD1.8 million compared to CAD4.9 million in 2015. This CAD3.1 million reduction was essentially volume related with lower revenue accounting for CAD3 million dollars and a small revenue mix of about $100,000 The SG and A for the quarter was $2,700,000 compared to $2,900,000 last year, a decrease of approximately 200,000 and lower marketing and property related costs were the main drivers of this decrease.
Our loss from continuing operations for the quarter before taxes was $1,500,000 compared to income of CAD1.3 million last year. Net loss attributable to common shareholders was CAD1.6 million compared to last year's net income of CAD1.1. Our total loss per share for the quarter was CAD0.13 compared to income per share of $09 in prior year. Our adjusted EBITDA from continuing operations as defined in this morning's press release was $152,000 compared to $2,900,000 last year. Turning to the balance sheet, our cash was down $1,400,000 primarily from the losses incurred during the fiscal year.
Our unbilled receivables were down $1,800,000 primarily from the reduced incoming waste during the quarter and the year. Our other receivables were down CAD1 million from amortization of prepaid expenses and the write off of certain other prepaid expenses related to our M and EC facility. Our impairment of the M and EC tangible and intangible assets explains the drop in the property and equipment and the intangible categories. Waste backlog for the quarter ended at CAD4.6 million compared to CAD4.7 million at year end and CAD5 million in September 2015. Our current debt excluding issuance costs was CAD1.2 million, down CAD1.3 million from year end and lower than prior year third quarter by CAD2.5 million.
And our total debt, again excluding debt issuance costs at the quarter end was CAD10.8 million and was entirely due to our lender P and C Bank. Finally, I'll summarize our year to date cash flow activity for the quarter. Our cash used by continuing operations was 1,300,000.0 Our cash used by discontinued operations CAD710000. Cash used for investing was CAD150000, of which CAD104 million was capital spending. Our cash provided by investing activities by our discontinued operations was $46,000 and our cash provided for financing was $838,000 With that operator, I'll now turn the call over to questions.
Speaker 0
Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Sam Rebotsky with SUR Asset Management. Please proceed with your question.
Speaker 2
Yes. Good morning, Lou, Ben and Mark. Yes, ma'am. I guess like all the other shareholders, we're disappointed about what about the results. But let's hope we're going to do something good in the future.
As far as the medical, the forty eight point six percent, is that with the $10,000,000 preferred or the what what would the rate the dilution be if there's 20,000,000 of preferred?
Speaker 4
If there's 20,000,000, it'll be the investor could own up to 62%.
Speaker 2
62%. So it's their option, not our option? Correct.
Speaker 4
Yes. It's 48,600,000.0 would be at $10,000,000
Speaker 3
Okay.
Speaker 2
So that dilutes our the value of this investment pretty significantly, I guess, because we haven't found somebody to put in money cheaper? Or what is the rationale? I mean, we expected a higher valuation, I thought. This was as we looked around in terms of a where this technology is at this stage, this this was a pretty good deal we found in terms of what we could do. So we end up, you know, with the exercise, we'll end up with about 30 percent in the first stage and after the first and 31%, a little over 31% and after totally complete, if all warrants are exercised about almost 25%.
So it is dilution and it is a significant dilution, but the company will also have 20,000,000 over $20,000,000 in
Speaker 5
cash to
Speaker 2
Now is this a higher valuation than what Digirad paid or is this a lower valuation? It's a lower valuation than Digirad paid. Okay. It's higher than the present market value, almost twice the value of the present market value, but lower than Digirad. Okay.
Now as far as closing of Oak Ridge, is there any other costs that have to be charged for the closing, any additional costs?
Speaker 4
Most of the significant costs have been taken. It is not it doesn't categorize as discontinued operations because it is nuclear. And therefore, the ongoing sort of facility costs are going to have to be absorbed and they'll slowly slow down. If they're closure related, they've been accrued for, but there are certain costs like utilities and just keeping and there is some waste still being processed there. So you'll see a reduction.
It's got the $2,000,000 plus is going to scale up as we go forward, you'll see more of that. And ultimately, that's sort of a run rate at the end of the process.
Speaker 2
But the way to look at it, Sandoz, is that at least over the next probably five, six months, there'll be still operations there going on and at the same time we'll be closing. So we're doing this in a trying to do in a very rational way to minimize the impact both on the technology customers and the bottom line.
Speaker 4
But we did take the entire write off of the intangible asset. That was the biggest hit. And most of the fixed assets have been relived, So they will depreciate out at the end of this process. And that's why we're actually seeing a little bit higher depreciation expense from that readjustment.
Speaker 2
Okay. Now the write down from '42 to thirty three December to September, there's no additional write downs. And you speak of a $16,000,000 fourth quarter, that's enough to breakeven or make a profit?
Speaker 4
At the adjusted EBITDA line?
Speaker 2
I mean, you make a profit with $16,000,000 in the fourth quarter? I mean
Speaker 4
Well, we projected a fourth quarter of about $1,000,000 of adjusted EBITDA and that kicks out Medical and discontinued ops and some of the anomalies.
Speaker 2
But as far as GAAP basis or profit or is it before taxes, is that
Speaker 4
No, if you ignored the write downs from M and EC, but with those numbers in the books for the year, of course, there will be a loss this year.
Speaker 2
No. But in the fourth quarter, will it be profitable?
Speaker 4
Well, with our numbers right now, we're consolidating medical. So we have those to assume and certain discontinued operations. So that's why we really tried to focus the investors' attention on the adjusted EBITDA because that's the number that kind of gives you a focus on the cash flow of the current operations.
Speaker 2
Okay. And what is the medical say in the fourth quarter? What is for the nine months, for the first nine months medical?
Speaker 4
Let me just tell you that. For nine months, we're at 4,800,000.0 We've spent about $1,000,000
Speaker 2
$1,000,000 So is it fair another $300,000 in the fourth quarter?
Speaker 4
Probably a little less. Until the deal is done, we've kind of sat in the hatches a little over there.
Speaker 2
Okay. Now there's one thing that I noticed in the last day or so, and is Energy and Solutions and Valve High contest DOJ's effort to block waste control specialist acquisition. Are you getting competition in this area from Energy Solutions? And is this acquisition good or bad for Perma Fix? And is Energy Solutions and you and everybody else, is there less money being spent?
Or how does this shake out? Well, we had we were very interested in the merger of the two and have, I guess you might say, mixed feelings. WCS is is a partner on several projects with us And we've I think one from a business point of view, you've seen both of those also badly hurt by the what we saw with in the industry. The merger itself, we've we're just watching it and seeing what happens. We I hate to say we're negative or positive.
We're there's some pluses and there's some minuses for us. What size is WCS? To the extent they're a partner with you, presumably they would no longer be a partner with you and they would be No. We've got very strong contracts with them that Energy Solutions has already said they would honor. So at this point and it will be very good for whoever owned them, those contracts, including the one on high level waste.
The one on high level waste, our partner is WCS. So you yeah. You could gain more business going forward if this deal goes through? You know, the The competition between us and Energy Solutions is not that great. They like large volumes of waste.
We compete once in a while and we're partners once in a while. So again, it's not it's hard to say what the effects of the merger would be. Now Justice Department has now brought a lawsuit to stop it and, we'll see how it all ends up. And is it your take the valuation that Energy Solution is putting on waste control specialist a higher valuation in the marketplace than Permafix without medical? No.
They they put a very high value. They paid a they're paying a very heavy price for WCS. And so in fact, that was one of the questions why are they paying such a high price for a company with very low revenue. We have probably more revenue than WCS. So what does this do for Permafix to finding somebody that's willing to pay a price comparable to what Energy Solutions is paying for Permafix.
Are looking for something like that? Well, we as a public company, we're always looking for something like that. But, you know, it's, with the two joining, it would be interesting for the industry. Without them joining, it will be probably even more interesting for industry. It will open up a variety of, other opportunities for the industry if they don't merge.
Well, I guess it yeah. At this point in time, Lou, I'd like to see a higher valuation for Pharmafix. Good luck. Hopefully, we could see something soon. Thank you, Sam.
Our
Speaker 0
next question comes from the line of Anthony Marchese, a Private Investor. Please proceed with your question.
Speaker 5
Hey, morning, guys. First, I want to congratulate you on your patience when people monopolize the conversation. In any case, I have two questions for you. One, could you just go a little further I mean, you've explained the quarter, so that's history. Could you go a little further into your high the low quantity but high level waste opportunity?
You mentioned earlier very quickly that you still have to work through some issues or potential issues. Could you just take us through a timeline? Okay, you finished in the fourth quarter. What happens next? What are the hurdles?
If you can explain that. I mean if you can Yes. Say that's
Speaker 2
We've been I'd like to describe this as we're breaking a lot of new ground here. We're taking treating high level waste and when finished, we'll actually dispose of it. So you already heard earlier our partner is WCS. So that somewhat explains where it's going. Is, the every step of the way is we're being extremely careful and because we are breaking a lot of new ground and making sure that everything is perfect.
And that we've crossed all our Ts and dotted our Is. So we are accepting, it's less than five gallons as a demonstration project. And that is, we have just given we sat, we went through the analysis over the last two, three weeks. So Perma Fix has now approved the waste coming to our facility. The next step is the customer now has to sign the shipping document that they agree with us, which is usually a very perfunctory operation.
But because of the visibility of this project, they will carefully do the same as we've done. Our hope is within a week, we will receive the material and, then go through a process, over the next two weeks of treating it, which normally would take less than a day. And at that stage, it will go for disposal. After it's been verified by an outside firm, It meets all the standards. And again, the paperwork will be is really the big issue here on every step.
It's, the technology is is at this stage from our point of view to treat it is a no brainer. But the paperwork is more the what we're doing. When we complete that, the next stage will be, we will, hope we're focused on trying to then treat a much larger volume, which would be, say, approximately 2,000 gallons, which would then occur sometime in 2017. And we're presently looking at the barriers, the issues to go to the next step. Again, it won't be a tremendous moneymaker for us, but it would be a further step in the process.
As we look at this, this solves some dramatic problems for the client. We're treating material that, is a major headache, is a problem for their vitrification process they'd like to do. And, we in a sense make it very easy then the material that we don't treat. Let's say we do get larger volumes, whatever is left can be then easily vitrified because we've treated the material that is a problem for vitrification. So, and as you know, at Hanford, there's 55,000,000 gallons and we figure that a large significant amount of that, would fit into our system.
And the remainder would then go to the vent printer.
Speaker 5
So this is potentially a billion dollar opportunity for you guys long term?
Speaker 2
More than that. But Okay.
Speaker 5
No, I'm fine. I understand. It's a long term opportunity. Final question. I appreciate the timeline.
Final question. Every conference
Speaker 2
call I've been on in
Speaker 5
the last two weeks, people ask, I guess I'll ask, does the change of administration impact how will the change of administration impact the various parts of your business? I assume this high level waste is something that any administration would want to see removed. This is not like carbon capture.
Speaker 2
No, this is not like carbon capture. This offers a new incoming administration a dramatic very, very dramatic savings with a very simple technology. The overall, and I'd probably answer like everybody does is that, I've said over the years when people ask me with the administrations that does a Republican or Democrat help you and the answer has been, we're dealing with regulations that are in place. And my old story is being an old Democrat, Democrats like to create new programs and start on new things and don't do a good job at running existing operations. Republicans do a great job of running existing operations and try to solve the problems we've got.
So as we sit today, we don't think we're going to see a big impact. But I'm it's not real clear until they start appointing people and then those people define just what is going to happen. Do we other than carbon capture and the role of nuclear I mean, the role of alternate energies and everything has been talked about, but the nuclear cleanup is you're dealing with existing regulations and problems. Just to add to
Speaker 6
that,
Speaker 3
I think the real impact really is continuing resolution and getting out of the continuing resolution cycle, which really slows down funding streams of the government. If they could pass budget, particularly in December 9 and get out of the CR process, that's really what holds up our industry moving forward on a waste stream received.
Speaker 2
And the advantage there is, right now they'll continue to continue resolutions till March, but the having two houses and a President all of the same party should mean we end
Speaker 7
up with a budget. That's where
Speaker 3
the real hope is.
Speaker 2
Yes. It's kind of hard to plan with continuing resolutions.
Speaker 5
Thank you very much. Appreciate your explicit answers.
Speaker 0
Our next question comes from the line of Doug Dyer with Wolverine Trading. Please proceed with your question.
Speaker 6
Good morning, gentlemen. Looks like at the Savannah site, there's a company called Parsons that is processing the waste there. And I was wondering if they are competing with us with their process at Hanford.
Speaker 2
No. They presently have a contract there that in fact will expire here shortly. And they're doing it on-site, and there are problems at the site with the processing. So we're very focused on that and watching what they're doing more from a technical point of view. And it's quite a different system there where they're doing it on-site, they're allowed to keep it on-site and dispose of it on-site.
Yes, on what they call salt latest operations. We're interested in what's happening there and also interested in the rebid.
Speaker 3
It is a waste stream overall.
Speaker 2
Yeah. No. It's a much different waste stream with
Speaker 6
actually more They're they're not competing with us though. Correct?
Speaker 2
No. They're not competing with us. No.
Speaker 6
Okay. And then getting to the timeline with regard to the demonstrations, you talked about 2,000 gallons in '17. Can you give us a little bit more guidance as to what part of the year that would fall in? And is the current timeline within the expectations that you originally had?
Speaker 2
Yes. The timeline is we've always expected that, we would aim for the 2,000 gallons in '17. And, you know, from our side, we can easily we could probably accept it tomorrow. So but, the big issue for is more on, the government side in terms of them, focus on it and to recover 2,000 gallons from the tank and what effort it would take and, how they would get it. So the problems at this point with the next step really sit with the client in terms of how they could recover it.
And I probably have talked about that we have a fixed price on this project with ourselves and our one major partner. It's about $100 a gallon. So it won't be a lot of money for us. The whole project will probably run about that part of the project will run about $5,000,000 but it's again mostly because of the paperwork and carefulness of the project.
Speaker 6
Okay. Great. And just one quick one for Mark before I go. Mark, you said that there would be some type of budgeting differences that will be coming up here and be resolved in December possibly to kind of free up and get paid Yes. With continuing
Speaker 3
The CR really stifles government spending in regards to new projects, which we're not allowed to get rolling as well as there's a monthly ceiling on spending that sites are faced with. That coupled with trying to keep labor within each of the major sites level through the election year has resulted in storing a lot of waste at each site. And as Lou mentioned earlier in his discussions or his talking point, all of our competitors have felt the same pain where we're not seeing waste movement at all. So the sooner our budget gets passed, the sooner projects new projects can get moving, the sooner they can start moving waste out of storage and transport and treatment and disposal. So it does have an impact on us.
Most of the impact is just delays. It doesn't necessarily change our revenue overall on an annual basis, but it does delay it. And we've seen a lot of delays, I guess, associated with planning for a CR and hopefully an eventual budget as soon as possible. I was believe December 9 was the first target for CR to be left or budget to be passed. Does that sound like okay, so it's March.
Speaker 2
March, yes. Right now the Congress is focused on continuing to March. We'll give the chance to new Congress to come in and try to do something.
Speaker 3
So it should have said March then on that All
Speaker 6
right. Thank you very much.
Speaker 0
Our next question comes from the line of Bill Chapman, a Private Investor. Please proceed with your question.
Speaker 7
Guys, good morning. Lou, we were talking you mentioned five gallons on this on this initial test. We've been talking 50 gallons. Was DOE just wanting to hedge the risk of doing this of this process to go from 50 to five? I know that sounds like that big a deal, but
Speaker 2
It actually ended up as a big deal because of the problems of retrieval. And so that they were able to find whatever they found, we said we'll take. And, because it was more important to demonstrate it than to have a set amount. We wanted amount that demonstrates commercial quantities,
Speaker 3
In a representative sample.
Speaker 2
Yes, and very representative. They came up the risk was delaying it another six months while they figure out how to get 50 gallons versus they only got 55,000,000 sitting there. So we'd want so that that's why we decided to go with whatever they could get us quickly.
Speaker 7
Okay.
Speaker 5
Yeah.
Speaker 7
Well, please comment on the risk longer term about getting a larger contract and being able to get the quantities out of those tanks since that's an issue right now.
Speaker 2
Well, the I think there's just a lot of institutional barriers because we're doing things that no one that has not been done. So we don't as I sit here today, I don't see any, but it's things will come up, issues will come up. So and that's as we move through this initial phase, there were a variety of problems that came up. They're all easily solved, but they're at the time. No, I don't know of any at the moment.
But it's more the unknown when you're doing a new project than what you know. Sure. Everybody the client is very excited about what we're doing. Like I say, it really dramatically changes the whole view of what's there and how you do it. And it makes the existing operation very, very doable, where if they had to treat all the waste we could treat, very serious technical issues.
And so it's really a win win for for everyone here, we think.
Speaker 7
Okay. Well, let's see. I'm getting to a larger contract. That's right now, it looks more like that could be initiated in, what, 02/2018? Is that that that's your best
Speaker 2
The thought would be is to do a commercial size project in '17 and then and then follow that with a a ongoing operation. You know, as like I say, we could there's ways this could be done very rapidly. You know, we could accept 2,000 gallons tomorrow. But there there there are many barriers that or the process has to be further defined as you get into larger quantities.
Speaker 7
Okay. Now where is senator Murray gonna be in the in overseeing in that the senate energy?
Speaker 2
Well, she is, like, I believe, the fourth ranking democrat. She's on the appropriations committee and has always played a big role in knowing what's going on at Hanford and is very aware of what we're doing.
Speaker 8
Okay.
Speaker 2
Think, she would be very pleased with, with any of the results. So and and she'll play she plays a big role in the new Congress. She gets along well with the, from a bipartisan point of view on the committees. And, the in general, there's a lot of support on both sides of the aisle for the cleanup program. Most of the districts are Republican that the sites are in.
And, so there's strong bipartisan support.
Speaker 7
Okay. Thank you very much.
Speaker 0
Our next question comes from the line of Joseph Bond, a Private Investor. Please proceed with your question.
Speaker 8
Yes, I joined this conference a little late. So I'm my first question would be how much cash do you have on hand? How much cash do you have on hand at the end of the third quarter?
Speaker 4
$4,145,000 We're
Speaker 2
a net borrower. We're net
Speaker 4
borrower. All excess cash goes to the revolver.
Speaker 8
I see. So in other words, you're you're just drawing down more and more on your revolver. Right? Is that it? To keep going?
Yeah.
Speaker 4
If we when we collect cash, we will pay down revolver and keep just minimum minimum cash on hand.
Speaker 8
So how much how much borrowing power do you still have left out of that revolver? What have you got access to?
Speaker 4
Yes. At the end of the quarter, we were at $2,300,000
Speaker 8
So you have access to $2,300,000 before you had to renegotiate it. Is that it?
Speaker 2
Correct.
Speaker 8
Okay. Alright. So the other thing I was wondering about is you have this medical program, and you have this $10,000,000 that's coming in. And I know you spent some of the company's money to get that going initially. Now I'm just wondering, are those funds commingled in any way?
Like is that a whole separate fund, dollars 10,000,000 goes strictly to medical? Or is it commingled with the overall companies?
Speaker 4
Well, in the the term agreement, there is a plan to the the medical company owes Permafix in the neighborhood of 2 plus million. And there's and and upon closing the deal, there's a plan for that cash to be paid in a short period.
Speaker 8
So you're gonna have an ex so you're gonna have an extra two two and a half million dollars available in your kitty. Right?
Speaker 4
Correct.
Speaker 8
Okay. So that's good. And then so you only have you're gonna you're only gonna end up with 28%, somewhere around that, of the medical company after all this all said and done?
Speaker 4
On the first tranche, it'll be 31 ish. And then if all warrants are exercised, we would go to about 25.
Speaker 8
I I couldn't quite understand the way it was scaled. It's like they they were okay. They had a they had the opportunity to buy an additional 10,000,000 with with at a higher share price. I mean, the way it was structured, it was it was kind of a convoluted deal.
Speaker 4
Yes. They can they have warrants for an additional 10, but then, we and another investor have certain warrants as well. And that's where and our share price is up, It's higher. It's more like the original Digirad price.
Speaker 8
Okay. Now and and and what is the just, you know, what, do you have any kind of idea of, like, when is this gonna be submitted, You know, I mean, to go through government review. Okay? And then beyond that, how long would it potentially take to get approved by the government?
Speaker 2
The you know, our our thought at this point is that we are delaying a lot of the testing that's needed for FDA submittal because of the cost. And so that on closing, you'd be looking at least six months of work needed to develop the portfolio for the FDA.
Speaker 8
I see.
Speaker 2
And so after closing, you have that period of time, and and that could vary. That could be nine months or it could be a month or so later. But it's it's hard
Speaker 8
Once you're you're giving yourself a minimum of six months to get it ready for for the for
Speaker 2
Yeah. At least
Speaker 8
go to the government?
Speaker 2
Right. At least six months. Our FDA advisers are then telling us that the the through the route we would choose, it would probably take a year and a half, maybe less, maybe more for the FDA to to analyze it and and get back to us. We we think a very simple process but nothing with the FDA I'm sure is simple.
Speaker 8
So you're looking at a couple of more years till you potentially could start getting some revenue out of that, right?
Speaker 2
Correct. And that's why with the investor when we discussed our budget, our path forward, we really wanted two tranches. One was what we think is needed. And the second is if we run into any problems, there's a second tranche that could be exercised to to finance the project.
Speaker 8
Okay. And I guess my final question is this. You you have been forecasting, you know, things which you never seem to hit your deadline on. You never you never seem to hit the deadline for it. Now this Especially this year.
Understand.
Speaker 2
I agree. Yeah. Yeah.
Speaker 8
Well, I've I've been I've I've had shares in the company for quite a few years, and, you've seen to miss a lot of deadlines. So what I'm wondering about is we you've had all these delays from the government. How sure are you about the revenue that you're going to get out of the like the fourth quarter? Is that pretty solid?
Speaker 2
Yes. Fourth quarter it's easy to predict the next quarter. And there we're we've got pretty good visibility. So I can at least do that. And the usual question now is what do we think next year is going to be?
And to be honest with you, because of what we've just been through, we're a little more shy in trying to give some guidance until we get into the year because of what we've seen over the last year and our ability to predict this year. I was pretty good at predicting the year before. And so when we entered this year, I thought we should do even better than we did last year, and, that didn't work out. So
Speaker 8
Don't you have don't you have any long term contracts?
Speaker 2
I mean, do you have a do
Speaker 8
you have guaranteed revenue stream?
Speaker 2
You know, on the waste on the waste side, we do not. The waste side is, when you're dealing with the government, you got two ways you can go. You can go cost plus, which is our service business, which gives you long term visibility and and reliability. And then fixed price, which is our waste side. Our waste side is fixed price.
We can we charge what we think is fair and, we have contracts with the government, but then the government will not guarantee anything with a fixed price contract.
Speaker 3
So that's actually what I talked earlier about our revised business program is exactly what we've been focusing on, getting and positioning and bidding on longer term contracts that give us more of a stability on the nuclear services side. And those are primarily the bids that we're focusing on right now is long five year contracts that would provide us stability.
Speaker 8
Yes. You used to announce periodically at at least smaller contracts from time to time, and I haven't seen any announcements of that kind, I don't know, in recent months. You know, once in a while, would announce publicized. You know, you picked up a contract for this, that. They weren't big, but I mean, they they came in and didn't seem like you got any of this in the list.
Speaker 2
We we actually unfortunately, we have, but we had clients who were adamant that we not say anything about them. We had one large one we were just about to finish which was almost $10,000,000 but because of the nature of the work Commercial client. And it was a commercial client, they were adamant that we not say anything. Yeah. We've I mean, we've been talk
Speaker 8
or you've been talking a lot about this, you know, this high level waste, and you've been talking about and I'm just talking about, never mind the high level waste, just the normal course of business. I mean, is there opportunities for do you see any hope for contracts from other I mean, what about your regular customers, new customers, customers that aside from the high level waste?
Speaker 3
There's been an impact due to the election, as we mentioned earlier on, which has slowed those things down. That's really what our focus has been on. If you look at our client list over the last few years, it's been pretty focused on Department of Energy and a few DoD and commercial clients and that's what we're expanding. We're seeing a lot more on the Corps of Engineers and the Navy, Air Force and Army as well as some very specific commercial clients in the scrap arena as well as the mining and oil and gas arena that generate natural occurring radioactive materials, which is called the norm. And we're seeing the growth in those.
Fact, this next quarter, we'll see a significant growth most likely in that arena for us. So we are expanding out much broader than we have in the past and much more methodically to get that diversification of client base.
Speaker 8
Our
Speaker 0
next question comes from the line of Sam Rebotsky with SER Asset Management. Please proceed with your question.
Speaker 5
Sam?
Speaker 0
Mr. Rebotsky, your line is live. Hello? You have us on mute.
Speaker 3
Hello?
Speaker 2
Hello? Hey, Sam. Hey, Sam. Yeah. Yeah.
Let let me ask you. I guess I'm sorry. I had to jump off the call. I had to take another call. You may have covered this.
Is there any way that do you with the transactions that took place with Veolia and the the transactions taken with with any energy solutions, with your possible need for money using investment bankers or looking for somebody to acquire Permafix? I don't I don't know if you covered this while I was off, but Well, I mean, we we constantly are getting inquiries and and, you know, if if they're of any significance or or any reality to them, we'd immediately talk to the investors about them. Now there's at the moment there's nothing like that going on. No. But what I understand is to the extent you should seek it out or have an investment banker help you seek it out to the extent that the valuations put on these other companies seem to be higher than Perma Fix anyhow.
That's my recommendation at this point. Well, know, we retain investment bankers now and then to assist us in doing valuations and then assist us in what to do in in not too distant past we have. And but at this point, acquisitions are a moment in time.
Speaker 3
I
Speaker 2
wish that the marketplace could put an appropriate value on what you've done and what you plan to do because clearly you've done a lot and the marketplace is not valuing you properly and yet these other companies are getting greater valuation. Look, I wish everybody a happy Thanksgiving and hopefully sometime in the New Year a better valuation and earnings come through. Good luck everybody. Okay. Thank you.
Speaker 0
Our next question comes from the line of Anthony Marchese, a Private Investor. Please proceed with your question.
Speaker 5
Yes. You mentioned that you'd wind up with 25% and maybe I'm putting the cup is half full scenario here. But yes, you're winding up with 25% to 30% of medical, but at the same time, you're not risking any real shareholder money or shareholder money to develop the company. So what do you see and maybe you've covered this in prior calls, but what do you guys give us a thirty second overview. What do you see as the market opportunity?
So yes, 25 my sense is 25% of a large number is a very large number for shareholders. Maybe I'm I don't think I'm wrong, but if you could just take us through that.
Speaker 2
What we've seen here is that the risks of getting to where we were going and bringing in money to do this without our own capital, the Board was very adamant that this makes tremendous sense. And the numbers you say are very large. Technetium is a the whole business, the whole market worldwide is some depending how you add it up somewhere between billion and $6,000,000,000 a year for the technetium market. Now the part we're focused on is that key part of probably just selling generators, it's
Speaker 8
a
Speaker 2
$500 to $1,000,000,000 market a year. So it's a very significant market. It has tremendous potential because it controls the whole market. And among the whole business of diagnostics, technetium is critical. So, that was pretty much what you just said was our view.
When we look at this without risking any further Perma Fix funds, we can find out, if this will capture and really change the whole technetium market. So it was we thought to get to we needed 10,000,000 to $20,000,000 to get there. And this is, we thought a very good way to go. And at the same time, ourselves then to continue to stay very focused on the environmental side of the business and the other technologies that we've developed that have potential commercial application.
Speaker 5
Right. So you have 11,000,000 shares outstanding or 12,000,000 shares outstanding. If you float 4,000,000 shares that only gets you at today's price of $16,000,000 So but at the same time, you'd also be diluting the shareholders massively. So I don't disagree with what you did. I think that No.
Speaker 2
When we We've we've had a variety of independent people look at this as we were trying to get to a point. And, the conclusion was this is a it's a it's a pretty good deal for where we need to be.
Speaker 5
And final question, what do you anticipate closing this? Or is is there is there an anticipated closing date at this point?
Speaker 2
Well, it's our hope and this is shared by the investors that the hope was by the end of the year.
Speaker 5
Okay. All right. Thank you very much.
Speaker 2
I'd say there's no guarantees there. Know how.
Speaker 5
Right. I know. Yes. Thanks.
Speaker 2
Okay. Thank you.
Speaker 0
We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.
Speaker 2
Once again, I'd like to thank everyone for participating in our third quarter conference call. To wrap up, we're encouraged by the outlook of both treatment and services, the significant growth opportunities ahead, especially looking forward to reporting on the outcome of our high level project. We appreciate the support of investors that agreed to fund our medical, which will help accelerate our path to commercialization while allowing management of environmental to focus back on 100% of our efforts growing the waste side. Appreciate everybody's patience, support and look forward to providing you updates in the near future. Thank you.
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.