Perma-Fix Environmental Services - Earnings Call - Q3 2017
November 10, 2017
Transcript
Speaker 0
Greetings and welcome to Perma Fix Environmental Third Quarter twenty seventeen Results and Business Update 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. It is now my pleasure to introduce your host for today's call, David Waldman with Crexendo Communications.
Thank you. You may begin.
Speaker 1
Thank you, and good morning, everyone, and welcome to Perma Fix Environmental Services third quarter twenty seventeen conference call. On the call with us this morning are Mark Duff, CEO Doctor. Lou Sanifani, Executive Vice President of Strategic Initiatives and Ben Naccaratto, Chief Financial Officer. The company issued a press release this morning containing third 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 include certain non GAAP financial measures. All statements on this conference call other than a statement of historical fact are forward looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U. S. Securities and Exchange Commission as well as this morning's press release.
The company makes no commitment to disclose any revision to forward looking statements or any facts, events or circumstances after the date hereof that there are upon forward looking statements. In addition, today's discussion will include reference to non GAAP measures. Perma 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 Senafani. Please go ahead, Lou.
Speaker 2
Thank you, David, and welcome, everyone. I'd like to first take this opportunity to formally congratulate Mark Duff on his recent appointment as CEO. He brings a proven track record, broad experience running companies, leading large projects at DOE and managing growth in our sector. Since joining Permafix over a year ago, Mark has done an outstanding job repositioning our service segment and enhancing our sales organization. He's helped advance new technologies and brought new opportunities within the Treatment Segment.
This will help diversify revenue and drive sales going forward. Look forward to staying involved and especially in spearheading some of our key strategic initiatives, especially as it relates to advanced technologies and business development. Happy to say, transition is happening in an exciting time with new initiatives the company is pursuing and the growth opportunities ahead. I cannot think of anyone better to help lead the organization in the next phase. On that note, I'll now turn it over to Mark.
Speaker 3
Great. Thanks, Lou. Before providing an update on the business, let me first take a moment to thank Lou for his vision and leadership for over twenty five years on this and his particular support to me, which has also enabled Perma Fix to become a world's premier nuclear waste treatment company in our industry. So thanks, Lou. Turning to our results for the quarter, we made significant progress across both segments by strengthening our offerings, expanding our market share and laying the foundation for growth in our Services segment through new initiatives that will leverage our core competencies.
Specifically, we achieved adjusted EBITDA of $654,000 versus $852,000 for the same period last year. Although we achieved another quarter of positive adjusted EBITDA, we're obviously disappointed with the revenue from our Services segment. Strengthening this segment is critical to maintaining our sustainable growth and will be the focus of our management team and specifically myself to leverage our technologies and relationships from the Treatment segment to grow the Services segment. At the same time, we've implemented numerous organizational changes as well as new initiatives to increase efficiency in marketing and operations that will reduce our cost of goods sold. Within our Treatment Segment, revenue increased 22% versus the same period last year as we received higher volume of waste shipments from our government clients.
We're implementing a number of new initiatives to expand our suite of services as well. For example, we're offering our clients increased services prior to waste shipments to take advantage of our fixed base facilities. We're also working with several industry partners to launch new technologies at our facilities to generate additional revenue using their technologies in our currently permitted spaces. These are in our treatment plants in Gainesville and Hanford and here in Oak Ridge at DSSI. At the same time, we continue to make meaningful progress expanding our international and our commercial sales efforts with particular emphasis on the Canadian markets.
This quarter, we were awarded a master services agreement along with several other contractors to support large scale remediation projects in Canada. These projects include technical challenges, which directly align with our current technology portfolio as well as our core competencies. In addition, we continue to see strong waste treatment opportunities in Europe, as well as Mexico that are expected to generate revenue in 2018 with shipments to our treatment facilities in The U. S. And lastly, we are pursuing a variety of major initiatives related to new waste streams and look forward to discussing these opportunities at the appropriate times in future earnings calls in 2018 as these projects come to fruition.
As a result, we anticipate continued improvement in both revenue and profitability heading into the fourth quarter and into the New Year. The growth in Treatment was partially offset by weaknesses in our Services segment as I mentioned. As we mentioned last quarter, we completed a commercial project in December 2016, which affected our year over year comparisons. We also had our largest nuclear remediation project delayed in this quarter, which in the past quarter, Q3, which resulted in two months of scheduled slip within the quarter. This project has since begun and we're fully mobilized and operational and is expected to maintain stable revenue generation through the spring of next year.
Heading into the fourth quarter, we're now seeing improvement in our Services segment. Our project bidding has been very busy and based on our historical win rates, we're confident we'll see benefit from these efforts heading into the New Year. In particular, we witnessed growth in the oil and gas sector, as well as the mining sector with increased management of what we call natural occurring radiological materials, also referred to as NORM. These are generated from oil and gas and mining activities within these industries. With the proposal win rate of over 60% year to date and with our 45 proposals submitted through Q3 of this year, we're now seeing the benefit of our proposal development center and our business development programs, which we've modified in the last year.
Turning to our P and L, we continue to carefully manage expenses, identify new areas for cost savings. We're on track to complete the closure of our M and EC facility by January year, so basically in about two months. We believe we will save an estimated 4,000,000 to $5,000,000 in fixed costs annually, which is a big deal overall on our balance sheet. Lastly, we continue to explore a variety of strategic options related to our medical subsidiary. We're in active discussions with a variety of potential partners and we'll provide a further update as soon as practical on our medical.
So to wrap up, we remain extremely encouraged by the outlook for both the Services and Treatment segments. And based on our current pipeline, we remain confident that we will both see top and bottom line improvement in the fourth quarter and believe we have set the stage for sustainable growth in 2018 and beyond. Before I turn it over to Ben, I do want to address one other item regarding specifically the test bid initiative at Hanford, what we refer to as the TVI project. We know there's been lots of interest from our investors in this. We certainly understand that our investors have requested and have a need for more information relative to the progress of this program.
However, I want to reiterate that our client, the Department of Energy, who's been very supportive of this project, has requested that all inquiries regarding the status of the project be directed to their public relations department. So to assist in providing some background and some underpinning for this important program, we'd like to direct investors to our website, where we've included three new links to current public information. And the first link we've included is to the February 2017 GAO report, which I believe we referred to in prior quarterly calls. This report defines the fiscal risks associated with the current approach for treatment of the Hanford tanks as well as defined by the GAO along with the recommendation for how to reduce that risk. Secondly, on our website, we have the September 2017 report by the Energy Communities Alliance, also known as the ECA report.
This report provides a recommendation from the communities to DOE recommending the TBI project specifically and again underpins the push forward with the TBA project. And finally, we've included on the link the September excuse me, the Saturday, November 4 article in the Tri City Herald in Washington State. The Tri City Herald had an article that provides additional detail regarding the status of our program and the receipt of the initial three gallons of waste from the Department of Energy. Perfect views the article to be accurate and complete and at least at this point. All other inquiries will have to go to DOE.
But I do want to underscore again that we have completely revised our website and launched a whole new website last night actually and we're very proud of it. It has a lot more updated information and presents our current capabilities much in a much stronger way. We've included all three of these documents and links on our website under the Investor tab and under Company News. So feel free to take a look at that and get more information about the TBI project. With that, I'll turn it over to Ben Knockerato, our CFO.
Speaker 4
Thanks, Mark. I'll begin with our revenue. Our total revenue from continuing operations for the third quarter was $11,800,000 compared with last year of $12,900,000 a decrease of $1,100,000 or 9%. Our Treatment Segment revenue actually increased by $1,700,000 or 22% and this was due to improved average pricing and also increased volume in the quarter. This increase however was offset by the revenue in our service segment of $2,900,000 or 54%.
Our service segment is project based and can vary depending on the size and timing of projects. We had a delay in one of our key projects, which did not resume until late August. And that along with the completion of a commercial project we had in 2016 were the main reasons for this variance in revenue. For the nine months ended September 3037, our total revenue was $37,200,000 which is relatively flat from last year's 37,800,000 in the prior year. As with the quarter, our Treatment Segment revenue has exceeded prior year, while our Service Segment revenue has been comparatively down.
Turning to our cost of goods sold. Our total cost of sales were $10,000,000 compared to $11,100,000 in the prior year. Our treatment segment costs increased by $936,000 Of this variable costs related to revenue were $481,000 but our fixed costs at facilities were up $455,000 of which this is entirely attributable to an increase in our reserve recorded at our M and EC closure process. Our service segment costs were down $2,000,000 and that is consistent with our lower revenue. On the gross profit line, the quarter, we were at 1,700,000 compared to $1,800,000 in 2016.
Our Treatment Segment gross profit increased by $776,000 and this it does include the increased closure expense of $550,000 as discussed previously. Our volume increase and our revenue mix was the primary driver of this improved gross profit in the Treatment Segment. Service segment gross profit was down $838,000 and this is entirely due to the decrease in revenue. Year to date, our gross profit has improved by 3,200,000.0 as both our volume and our average price in the Treatment Segment has contributed to $5,200,000 of improvement in this segment, while the gross profit in the Service Segment has been down by $2,000,000 due to the lower revenue. At the G and A line, our total G and A costs for the quarter were $2,700,000 which is flat from prior year.
Our lower labor we had lower labor and legal costs, but these were offset by costs related to our annual user conference, which we did not have in 2016. For the nine months ended September 2017, our G and A expense was $8,300,000 compared to $8,200,000 in prior year. This increase is due to the fact that 2016 we had a pickup in the second quarter of $360,000 related to a receivable, which had been previously written off, but was deemed collectible and brought back in. Our loss from our continuing operations for the quarter was $2,000,000 compared to a loss of $1,500,000 last year. And again included in this loss are the costs related to the closure reserve of $550,000 and the non cash impairment costs of $672,000 at MNDC where we wrote off the remainder of the assets at that plant.
Also included are 197,000 and $342,000 related to our Medical Isotope segment for Q3 twenty seventeen and 2016 respectively. Our loss of ClickFord common shareholders is 2,000,000 compared to last year's net loss of $1,600,000
Speaker 5
in the quarter.
Speaker 4
Our total loss per share for the quarter is $0.17 compared to a loss per share of $0.13 in prior year. Our adjusted EBITDA from continuing operations for the quarter as we define in this morning's press release is 654,000 compared to $152,000 last year. For the nine months ended September 3037, our adjusted EBITDA was $2,100,000 compared to an adjusted EBITDA loss of $1,300,000 in the prior year. So we've seen an improvement year over year on this metric of $3,400,000 Turning to some key balance sheet items as compared to year end 2016, our cash balance has improved by $892,000 as a result of the closure bond transition we did in the second quarter. This allowed the company to free up $5,900,000 of cash, which was used to secure alternative bonding and also pay down much of our long term debt.
Our unbilled receivables were up $1,600,000 and this reflects timing of billing and is pretty much contractually determined. Our intangibles and other assets were down $6500000.05900000.0 of which is relates to the cancellation of the closure policy. The cash was formerly held as a restricted cash and it freed up the restricted cash as I mentioned earlier. Our waste backlog was at $6,800,000 compared to $5,300,000 at year end and $4,600,000 at this time last year. Our long term liabilities were down $5,000,000 as a result of the full payoff of our revolver and the reclassification of certain closure expenses to current at the M and EC facility.
Our current debt is at $1,200,000 which is consistent with year end and prior year third quarter. And our total debt currently sits at $4,300,000 This is excluding the debt issuance costs and this is all due to our primary lender with $4,300,000 all represented by a term loan balance and reflecting zero balance in our revolver. And finally, I'll summarize our cash flow activity for the nine months. Our cash provided by continuing operations is 355,000 Our cash used by discontinued operations is $464,000 Our cash provided by investing activities was $5,700,000 of which $200,000 was cap spending. Cash provided by investing activities for the discontinued operations is $52,000 and cash used for financing was $4,700,000 of which $914,000 was used to pay down our term loan and $3,800,000 was used to pay off the entire revolver balance.
With that operator, I'll now turn the call over to questions.
Speaker 0
Thank you. At this time, we'll be conducting a question and answer session. Session. Our first question comes from Bill Naskov with Heartland Funds. Please proceed with your question.
Speaker 6
Well, good morning,
Speaker 3
Good morning, Bill.
Speaker 6
So it's great to hear that you've put out 45 proposals and 60% win rate, Mark. That sounds very encouraging. And we've paid off the revolver. That's nice to see too. What parts of the business are you most excited about going forward, Mark?
Speaker 3
A couple of things, Bill. One, Canada is going very well for us. Canada is a wide open market. It's got a lot less competition. And our core competencies align directly with the technical challenges they face in Canada, particularly as they just get they're just getting started with their cleanup program.
And we have very key contracts already in place. So we have good relationships with the clients. We've got an office now up there and it's growing very rapidly. So that's really kind of the focus on the services side as far as I'm excited about. On the treatment side, we're getting a lot of really good feedback from how we're offering our clients as opposed to just receiving waste.
We're actually proposing with them to go in earlier in the process, package the waste, help in the planning stages to not only feed our plants, but to provide more services in front of receipt of waste. And that's going very well. We have a couple of big initiatives in 2018 that will or hopefully going to secure that we'll I'll be able to talk about in more detail. But those are the two things. We're also the third thing would be that Bill that we're adding some new capabilities at our plants, which we haven't done in a long time.
And these capabilities as we mentioned in prior calls will provide for a wider and larger market base for waste treatment. We were getting a little stagnant in years past with basically the capabilities we had. Now we're going to be broadening this capability, we can take in different types of waste in addition to what we've already received before. So those are kind of the three things I'm most excited about.
Speaker 6
Okay. Thank you. I'll step back in the queue here.
Speaker 0
Our next question comes from Anthony Marchese, a Private Investor. Please proceed with your question.
Speaker 6
Hey, good morning, guys. Two questions. One, on your service segments, are you competing against the same people? Is it that you're are you losing contracts due to price? I'm just trying to understand why the drop off?
Speaker 3
Anthony, I appreciate your question. It's been the Services segment has kind of reached a trough over the last couple of years with Perma Fix and we're building that back and it takes a little bit of time to build it back because you have to reengage with your clients, build those relationships back that may have been around four or five years ago, get the find the key people that you need to do the work and build up your portfolio capability, so you can win these bids. But to answer your question, we are we have there's a lot of competition. We generally are not necessarily losing on cost. We're very competitive on cost.
When we get a debrief, we see that we're in the top couple for each bid. I think once we secure more key people and we get a couple of projects under our belts again, which we have right now, in other words, have some references for ongoing projects, we'll be fine. We're doing some great work in California for Department of Energy. I was out there just this week on Monday and the client is very happy, so we have a really good reference there. Same with Canada, so we're building those references back up and our marketing campaigns are taking a little bit longer to really bear fruit than I thought it would a year ago.
But again, as we mentioned, as Bill reiterated, the 45 bids we've got in, we haven't heard about all those yet and the 60% win rate is not necessarily directly lined up 45, it's basically it takes months sometimes to hear on some of these bids. But as they start rolling in, take a lot of time after every bid to understand why we lost and what we need to improve so we can do better on the next one.
Speaker 6
All right. And final question, I know you don't give guidance. Is there a possibility that you'd be net income positive in the fourth quarter?
Speaker 4
Yes, I can I'll answer, Anthony. The biggest impact to that is the write down at M and EC. We've our bottom line has been impacted by the accelerated depreciation at the facility. And this quarter, we had the triggering event of pretty much there won't be much more production and therefore we wrote down the remainder of the assets. So you're going to see a pretty substantial in the 600 to $700,000 reduction in just in D and A costs.
So I think it's going to get pretty close. We're still minimizing our medical costs. Those are also sort of non core costs that hit. And so between those two items, I think you'll see a much you'll see significant improvement at the bottom line, yes.
Speaker 6
Great. Thank you.
Speaker 0
Our next question is from Joe Brown, a Private Investor. Please proceed with your question.
Speaker 7
Yes, I have a couple of questions. You have well, first of all, let me ask you. You have these two projects that you're working on, the one with the government, the other one with the isotope. How are you doing as far as lining up people or potential investors in that iso pill project?
Speaker 2
It's Lou Sindefani. As you know, we broke off from our last discussions with a potential investor. And since then, we've really been going down two paths: one, continuing to with our limited resources, continue to work on the technology, and that continues to go well. Not much new I could say there. The second is really exploring other options.
And we've gone down multiple paths in terms of financing of the unit from everything from bringing more money into licensing. And we see some, we have several right now we're exploring and can't say much about at the moment, but we're hoping that in the very near future over the next several months, we'll be able to talk a lot more about what our path will be. So at this point, it's we've made progress, but nothing that's where we can talk about it at the moment. But hopefully in the next several months we will be able to.
Speaker 7
Yes. I had a couple more questions. Well, one of them pertained to you mentioned in this conference that you had other people use putting using their products in your facilities. Can you explain that a little more? What's the potential profit on something like that?
I mean, it sounds a little strange, but go ahead.
Speaker 3
Well, that's a great question, Joe. This is one of the things I'm most excited about that we're doing right now. It's going to it has very strong near term positive impact. And just to answer your question, we have these soon to be three facilities that have very significant barrier to entry for companies that have technologies. In other words, it is very difficult to license these types of facilities.
We have extra space in several other facilities. And in this extra space, what we're doing is we're working with companies out there that don't have these kind of facilities, but do have cutting edge technologies that they have patents on that specifically address some of our clients' waste needs. In other words, focused types of needs for like reactive waste and those types of things that frankly there's not a lot of competition out there about. So basically what we're doing is we're working with those companies to launch their technologies in our license space. We will operate them, we will manage them, we'll market them, but we'll work with them in an operating agreement type of basis, so that we can expand our capabilities, use our facilities and our trained operators and our market base or our client base, people we already have relationships with to be able to broaden our offering in the marketplace.
So we're doing that in two different initiatives going on in parallel right now and those are the kinds of things that can result in a very, very fast and significant impacts to the future revenue.
Speaker 7
Are these companies that do they have clients already or they just have a product?
Speaker 3
They have clients but it may not be for that specific technology, but they have a client they're in our business space or in our industry.
Speaker 7
So are they competitors? I mean, would they be
Speaker 3
I mean, in the industry can be a competitor and they join different teams and those types of things, but not direct competitors, no.
Speaker 7
Okay. And what's the potential revenue out of something like that? I mean, you realized any profit or revenue from that or No, actually
Speaker 3
George, we're in the final stages of planning and our agreements at this point. We hope to have something sometime next year when we'll talk about that more once we get the agreement signed and moving forward.
Speaker 7
Okay. Another question I had was, I think at the last conference you had said that you were, hiring people. You had said this maybe last quarter or two quarters ago, you said you were hiring people because you were optimistic. But today, you said that your labor costs are down. So I'm trying to understand, are you has your headcount gone up?
Or have you what's your latest headcount and how much has it changed?
Speaker 3
It hasn't changed dramatically, Joe. It moves around a little bit here and there, what Ben was saying in regards to our Services segment is that as we do new additional projects, we have increased labor costs because we're hiring either actual laborers like laborers and operators and that obviously increases your cost of goods sold. So that has gone down because of we don't carry those folks, whether they're union, non union, whatever they are, but we don't carry those folks who've been on projects. So that will show you a labor cost that has gone down. On professional labor, on key staff, on project managers and specifically, as I mentioned in the last call, we've hired a number of certified health physicists, which are very hard to find and that's kind of building our practice for the protection side of the house.
We've hired a number of those each quarter and that continues to grow. And what that does is it brings to us when you hire a CHP, it brings to you new client potentials, people they worked with in the past, those kinds of things. So we are continuing to increase our professional staff, but we have seen some dips along the way in our overall labor hour numbers because of the gaps in projects.
Speaker 7
So in other words, you've decreased like less technically qualified people, lower level people, is that what you're saying?
Speaker 3
Yes. Yes. I mean labor like real labor like labors and operators in the field types of things.
Speaker 4
And Joe, I'll just add the comment about reduced labor was at the G and A and overhead line. And if remember, we're comparing with last year and we had a severance cost last year from a termination that obviously raises costs when you're comparing. But it's G that's and down for a variety of reasons.
Speaker 7
Okay. Now the other thing I was curious about is you said you're going to be pretty close to making some money this quarter, maybe free cash flow positive. I don't know. Assuming that you start to make money, maybe in the first quarter of next year when some of these plant closure costs have gone away and you realize the benefit of closing one of your facilities. Assuming that you start making money in the next quarter or in the first quarter of next year, what would you do with that money?
You have a debt of you said long term debt of like $4,000,000 $4,300,000 something like that. So what would if you when you start to make money, what what would be your priority? Would would you want to build up your cash hoard, your or would you wanna pay down more debt, or would you put the money into a couple of these projects that you're working on? You know what I mean?
Speaker 4
I'll start and then Mark can talk more about spending side.
Speaker 7
What priorities?
Speaker 4
Debt is very reasonable right now. It's got about four years left on it at about $100,000 a month. So it wouldn't make a lot of sense to use up all your cash to pay it down. We've got a long term relationship with our lender. So as become more cash positive, we have a number of initiatives that Mark can certainly address that we would want to invest into generating more revenue and more profit.
Speaker 7
Some
Speaker 3
of the initiatives we have would include some new equipment, even some new buildings. So some of it would go towards that as well.
Speaker 7
Okay. So okay, so the debt would remain the same. All right. And then I guess one more question I had is, I mean, if your company know, it's there's been a long, long process of trying to turn this company around. It's I mean, doctor Liu has been very positive quarter after quarter, but none of it ever really materialized.
But what I'm thinking about here is that, if your company starts to make money and starts to look attractive, you have such a low valuation and you have a high float of stock out there. If somebody wanted to, if they they became interested, it seemed to me that your share price is so low. Your your you know, your company's worth, what, more $40,000,000. I mean, somebody could take it over at at a very you know, I mean, you know, for a very low investment, they could take over your company if they wanted to. And yet there's a lot of float out there.
I'm just wondering, is there any safeguards that you have and somebody coming in and bidding like I don't know five dollars a share or something to take it over? I mean is there any safeguards with you know what I mean?
Speaker 4
Yes. The company has a rights plan which would help the board protect against a lowball offer. So that's been in place for a number of years. So there is that protection mechanism and at the low valuation we hope that as the profitability starts to kick in, we'll see what we consider a pretty undervalued stock start to
Speaker 7
Yes, it's horribly undervalued. I think the stock is down. I I if I look back over the last eight years, I think you're down, like, 95%. I mean, it's just I mean, you you did did this reverse five for one reverse split. I mean, incredible what your company is worth today versus what it was worth even five or eight years ago.
Speaker 4
Yes. To your last question, I guess another option if we have excess cash would be buying back stock.
Speaker 7
Okay. All right. That's all my questions. Thanks.
Speaker 0
Our next question is from Bill Naskowitz of Heartland Funds. Please proceed with your question.
Speaker 6
Yes, one more here on this plant. So we took another $1,200,000 write down. Are we done taking write downs on this plant or is there more to go?
Speaker 4
Well, as our best estimates Bill, we should be done. We have to estimate and we're within three months. So we're getting closer to the big unknown is always with these types of closures is what your final disposal expense will be. And that was pretty much the gist of the latest increase, which was the $550,000,000 The $672,000,000 was really just writing off the assets. And so that's done.
And as we hope we've got the right estimate on the closure. We think we're pretty close now to knowing what that number will be. So we don't think there'll be anything so material. May adjust either way.
Speaker 6
So this plant will you indicated in the release here $4,000,000 in annual expenses. But I believe you said earlier 4,000,000 to $5,000,000 So that's a significant amount of money. And that will start to kick in then in Q1 or won't be expensed in Q1?
Speaker 4
Yes, some will kick in, in 4% because of that 4% to 5%, there is depreciation in that. Depreciation was running around 200,000,000 to $225,000,000 a month. So that about $2.5 to 3,000,000 of the numbers there.
Speaker 6
I guess I'll rephrase my question. So let's just take the $4,000,000 Will that be realized over the course of 2018? Yes. Okay. Well, that's significant number, isn't it?
Speaker 0
Yes.
Speaker 6
The company doesn't publish backlog. Mark, are you at all considering in the future to give shareholders some idea of the direction of this company publishing backlog?
Speaker 3
We don't publish backlog now, but we did talk about waste backlog, but as far as funded backlog, it is something we're starting to focus on a little bit more. As far as publishing that, Ben, don't know if you have a perspective on that, but it hasn't been that good on the services segment. And it's difficult, Bill, because the it's difficult to nail down when you're going to actually receive your waste. Contracts come in quickly. We get we work with our clients and say, we got $3,000,000 worth of waste to ship you and then you're sometimes it comes the next day and sometimes it comes a year later and you usually sign a contract right before it comes.
So funded backlog is difficult in a traditional sense like a services segment where you have a contract signed and you know you're doing this work, it's a little different on the waste side. It's not quite as strong of an indicator as some other industries. Ben, do you have a perspective?
Speaker 4
Yes. I think the backlog we do publish of course is our waste and that's really more unearned. That's when we have the waste in hand and we can control the revenue from it. The lack of the large service projects where three years where we know we're going to see X amount of revenue on a quarterly basis that's really what has kept us from publishing that. It is a once it becomes a material metric that will help the investors understand what's happening.
I think it certainly is fair game to publish.
Speaker 7
Okay.
Speaker 6
Mark, you must have like an internal pipeline or some measure of I guess the bidding process.
Speaker 3
We do Bill, we do on our services segment particularly and we have very well managed spreadsheets on the waste as well. We're projecting three to six months ahead at any given time based on marketing and sales that we're chasing. And we adjust win probability and those kinds of things to try to better project what our backlog is going to be on receipts.
Speaker 6
Okay. Thank you.
Speaker 0
Our next question is from Chuck Dickinson, a Private Investor. Please proceed with your question.
Speaker 8
Yes, hi. Good morning here. I see that the impairment loss on the tangible assets is obviously a non cash charge. That was $672,000 in the latest quarter. Also the closure cost that hit the cost of goods sold for the accrual for the MNEC unit of $550,000 was that also a non cash charge?
Speaker 4
Well, in the current period, yes, it's increasing a reserve for future. We will ultimately when we pay down that when we close that facility that will become cash expense.
Speaker 3
How does that does
Speaker 8
that get expensed over time or is that a one time cash cost when you do expense it? How does that work?
Speaker 4
Well, as we ship waste. So we will as the facility goes to closure in the next three to four months, we will have to get rid of waste off the site and vendors will charge us and then we'll pay that out accordingly. So it won't be one time $550,000 it'll probably be in 50,000 to $100,000 increments per month
Speaker 7
kind of number.
Speaker 8
Right. Okay. So a previous caller had said, hopefully next quarter you're getting close to maybe you'll be cash flow positive. Unless I'm reading this incorrectly in the current quarter, you already are cash flow positive on the adjusted EBITDA basis. I mean, there's no getting the cash flow positive.
You're basically
Speaker 5
already there. Yes, that's
Speaker 4
correct. Now keep in mind that reserve for this disposal number is about $3,000,000 of which around 2,000,000 is still disposal. So you will see a quarter when we have to spend that money to get it out the door. But you're right, our EBITDA number is up to about 2.1. Our adjusted EBITDA number is about 2.1 and that loosely represents positive cash.
For the year, we were $355,000,000 from continuing and that's an improvement of near $1,000,000 for the third quarter. So yes, we are seeing positive cash. The cash flow is improving in the company.
Speaker 8
Right. And going forward, the 4,000,000 to $5,000,000 of cost savings that you're projecting on an annual basis from the closure of that MNEC facility, how much of that roughly of the 4,000,000 to $5,000,000 will be related to depreciation, which is non cash, a non cash expense anyway, so it really doesn't improve the cash flow. But how much of that cash savings is there in that 4,000,000 to $5,000,000 that you would realize annually?
Speaker 4
About 2,500,000.0 to 3,000,000 would be the traditional depreciation number for the like annualized. So you're talking about approximately $2,000,000 of improvement in cash.
Speaker 8
Right. Okay. Yes. Because I don't really care. I mean, I do care about net income, but I'm much more focused on the cash flow situation and sustainable cash flow situation.
It sounds like that will be a pretty good pop on an ongoing basis to the cash flow numbers and sort of provide hopefully some margin of safety going forward. Last question I really had, just looking at the current ratio, it's a little bit under one. I mean, it's not significant. I mean, for all intents, it's about one, one point zero roughly. But do you have any concerns there?
Is the cash flow enough that you see going forward in addition to what you have in your current assets? I mean, it's not just current assets, current liability as you go forward next quarter and going forward hopefully, you'll also be generating some positive cash flow. So I assume there's nothing on the current liability side that gives you any cost per concern and your revolver is totally paid down. You paid down much of the term loan, so there should be a fair amount of flexibility there. So really that becomes something not to worry about, I assume, on the current ratio.
Speaker 4
And that's correct. It's entirely impacted by the disposal reserve we discussed. So long as and we do have availability, the revolver is clean and we actually have a little extra availability that the bank is kind of holding that we're going to discuss with them as well. So no, don't have a lot of concerns about the liquidity side of getting through this process. And then that would ex out the facility closure, then we'd be in a pretty good position from a working capital standpoint.
Speaker 8
Right. I guess one more thing. The political side of all this, there was mention made that one of the difficulties has been the lack of personnel being put in place in the current administration that kind of bogs things down a little bit as you try to get some of the government funding flowing. Are you seeing any movement in that? Is there any optimism in that?
I mean, we to really wait for a change in administrations and a Congress that works in conjunction with the executive office and the right secretary of DOE to get things going? I mean, I guess the bottom line question is, has there been an improvement in the problem that's been there of not having appropriate personnel in place to make your job easier when you go to the government with projects and basically there may not be anybody there to sign off on something?
Speaker 3
Seth, we did mention that last quarter. Think that we have seen an improvement, is reflected in some of the movements with the TBI project. And I think there has been a couple of confirmations in the last two weeks at senior levels. So I'd have to say, to answer your question, yes, have seen improvement. And I'll also say that I think our business is less dependent on where we're going from here.
Speaker 8
Okay. That's great. And on the TBI project, you may or may not be able to answer this. I know you're in a very sensitive situation on that, but there was something in that Tri City Herald article that had mentioned that were this thing to go forward, there might be a situation where the permitting of PESI would have to be a Perma Fix would have to be adjusted or updated or amended or something. Can you talk about that at all or not?
Guess what I'm getting at there is that something that would be and it would be open to public comment or something. Is that something that would be a significant hurdle, nothing of significance to worry about? And if you can't talk about it with regard to that specific project, maybe perhaps you had a permitting situation in the past with some other project where you had to go and get the permit updated or changed or amended. And not knowing anything about that process, was just curious if that becomes an impediment or something that's just kind of a statutory thing that you have to do?
Speaker 3
Chuck, again, I wish I could answer that for you. And we might be able to by next quarter, but right at this point, we address anything associated with TBI.
Speaker 8
Yes. Okay. Thank you very much. That's all I have.
Speaker 3
Thanks, Chuck.
Speaker 0
Our next question is from Bill Naskowitz with Heartland Funds. Please proceed with your question.
Speaker 6
Yes. So you mentioned, Mark, perhaps spending some money on facilities. Any idea in terms of CapEx this year and what your estimate of CapEx is for next year? And then also R and D this year and what you might spend on R and D next year?
Speaker 3
I'll let Ben talk about it. Right now we don't have any CapEx. Do we actually spend it in this quarter Ben or can we say for?
Speaker 4
It's pretty minimal Bill. For the year? Yes. For the year we're at 200,000,000 for three months and we might get to $05,000,000 by end of the year. We've got some but it's more facility repairs and maintenance type capital.
Speaker 6
I guess I'm more interested next year.
Speaker 4
Yes. We manage our capital pretty tight. As you know from historic, we've never had we'll typically budget about $1,000,000 $1.2 for sort of ongoing operations. Anything real significant would probably be borrowed.
Speaker 6
How about R and D?
Speaker 3
On the R and D front, Bill, we do have a couple of exciting things going on with we've received basically some grant money and we've applied for a number of other types of grant money to do R and D for some very specific hazardous materials out there that the Air Force is dealing with associated specifically with firefighting foam at air bases. We are so we're doing some R and D there. It's a reimbursable R and D that we're very excited about because we're in the absolute cutting edge of that. And if we can put together a verifiable treatment approach, then we'll be in a great position to actually treat this waste probably either in situ or in our facilities. So I would probably say, Ben, outside notwithstanding medical, I'm not going address medical, but as far as non medical R and D, we're probably in the several 100 K range for actual treatment technologies.
Would you disagree with that, Ben?
Speaker 4
Yes. We're at about for nine months we're at about $338,000 and last year was 321,000 So we run a little bit under 100,000 or 100 ish a quarter.
Speaker 6
Okay. So you're not anticipating a big increase in R and D for 2018?
Speaker 4
No, no. The biggest chunk of the line you see on the income statement Bill is because we consolidate medical that
Speaker 6
number will
Speaker 4
come down.
Speaker 0
Our next question is from Steven Fine, a private investor. Please proceed with your question.
Speaker 5
Good morning, gentlemen.
Speaker 4
Good morning.
Speaker 5
Obviously on the medical thing if you find an investor I mean what I'm looking what I've been looking at your metrics, 1,000,000 would go away, you know, presuming you found someone to take hold of that. So that would obviously be, you know, significant. And, you know, I think that should be, you know, taken into account. Secondly, I've been an investor for about three quarters. I've heard this is my third, you know, earnings meeting.
The tenor of this meeting, the extent of this meeting excites me. I commend you all. I think there's tremendous opportunity and possibilities. Having a background with government and with hazardous stuff, I commend you. I commend you to go out there and, you know, to make a company work, but there's also a moral imperative.
And, you know, you're doing something for society. I know, as one gentleman brought up, the issue with Hanford can't be discussed. But I have followed the Sentinel every night. The thing that I see is the courageousness of the Department of Energy, how they are looking at this from a pragmatic standpoint, how they're saying two thirds of the expenditures that go out there for infrastructure and not for waste. So that in itself having a government who is looking in that way, I think is very exciting.
So again, I thank you as a stockholder and I'm extremely excited.
Speaker 3
We appreciate your input and your thoughts, Steve. Appreciate that a lot. It means a lot to us.
Speaker 0
Ladies and gentlemen, we've reached the end of the question and answer session. At this time, I'd like to turn the call back to Mark Duff for closing comments.
Speaker 3
Okay. Thank you. I'd like to thank everyone for participating in our third quarter conference call. As I mentioned earlier, we've achieved another quarter of positive adjusted EBITDA. In fact, our adjusted EBITDA increased more than fourfold from the same period last year.
Within our Treatment Segment, we've increased 22%, which was offset by a temporary decline in the Services Segment as we mentioned. However, we are fully confident that we'll replace this lost revenue and return to growth in our Services segment very soon. Heading into fourth quarter and then in 2018, we anticipate continued growth in revenue and improved profitability. For the fourth quarter, we expect continued growth and as I said, better net income than the third quarter. So an increasing net income over the third quarter due to the M and EC impairments within the EBITDA that we've reported.
We're anticipating about $3,000,000 in EBITDA for the year end as well. We appreciate everyone's continued support and look forward to providing additional updates in the near future. Thank you.
Speaker 0
This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.