Perma-Fix Environmental Services - Earnings Call - Q3 2018

Transcript

Speaker 0

Greetings, and welcome to the Perma Fix Environmental Third Quarter twenty eighteen 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. I would now like to turn the conference over to your host, David Waldman, Investor Relations for Primafix.

Thank you. You may begin.

Speaker 1

Thank you. Good morning, everyone, and welcome to Perma Fix Environmental Services third quarter conference call. On the call with us this morning are Mark Duff, President and CEO Doctor. Lou Senifani, Executive Vice President of Strategic Initiatives and Ben Macarado, Chief Financial Officer. The company issued a press release this morning containing third quarter twenty eighteen 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 Investor Relations at (212) 671-1021. 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 revisions to forward looking statements or any facts, events or circumstances after the date hereof that bear upon forward looking statements. In addition, today's discussion will include references to non GAAP measures. Perma Fix believes that such information provides an additional measurement and 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 Mark Duff. Please go ahead, Mark.

Speaker 2

All right. Thanks, David. I'm pleased to report that for the third straight quarter this year, we achieved revenue growth and profitability despite continued and unexpected delays directly related to the closure of our M and EC facility. We now expect the facility to be closed on or before the end of the year, resulting in a positive impact on performance of the overall company. Despite this temporary disruption associated with the closure of M and EC, as we shift resources among our facilities, revenue for the 2018 increased to $12,000,000 versus $11,800,000 for the same period last year.

It is important to note we have maintained our revenue over the last year despite terminating operations in M and EC along with the termination of the treatment capabilities that were unique to that facility. Those capabilities have not yet been fully deployed within our other existing plans. MUC generated about $5,600,000 in revenue in the first nine months of twenty seventeen compared to only $155,000 in 2018. In other words, our three plants our three existing plants covered the drop in revenue. Our gross profit included 1,100,000.0 and about $550,000 of closure costs related to M and EC facility for the 2018 and 2017, respectively.

Excluding these expenses, gross profit would have increased to $2,900,000 versus $2,300,000 for the third quarter of 'seventeen. We achieved adjusted EBITDA of $510,000 compared to $654,000 for the same period in 'seventeen, and we generated net income attributed to shareholders of $221,000 or $02 per share versus a loss of $2,000,000 or a loss of $0.17 per share for the same period last year. The transition issues related to our MEC facility are largely behind us with closure activities expected to be ramping down and regulatory approvals expected by the end of the year. While we would have liked to have MEC closed months ago, our team has worked very hard to ensure the impacts to firm fixed performance is minimized until the transition activities are completed. We also see the impact of our new sales strategies and increased focus on delivering innovative solutions to our clients.

As a result, we expect significant potential moving forward. Turning first to our Treatment Segment. We ended the fourth quarter beginning in October with a backlog in excess of $9,000,000 which should bode well for the rest of the year and into the 2019. Also within the Treatment segment, construction activities are continuing at our former Explorer facility to accept and treat radioactively contaminated water and additional commercial waste streams. While we realized some challenges in achieving operational status due to long delays and permit approvals, we've already begun to receive water treatment backlog inventories to support operation and should begin treatment in the 2019.

We're also continuing our expansion program in the hazardous waste processing market, primarily targeting geographically focused opportunities in the Southeast U. S. Markets in order to maximize utilization and throughput of our facilities. We've realized recent wins in both Georgia and Florida, including large metropolitan areas, are providing sustainable backlog for larger volumes of hazardous waste. We're also making progress with the installation of our GML system at our Perma Fix Northwest facility through our partnership with Veolia Nuclear Solutions.

We have completed construction, installation and we've initiated startup testing of the GML vitrification system, which we use to treat waste drums containing sodium residual waste. The completion of this capability is critical to Perma Fix and the federal government as well as it will allow us to address a large inventory of reactive waste currently in storage. We continue to pursue a number of international opportunities with strong probabilities for success. However, as is the nature of most international opportunities, the projects have more administrative issues to overcome and are generally considered middle to longer term in nature. Within the Services segment, revenue increased to 2900000.0% for the 2018.

The quarter realized increases in bidding activities, particularly within the U. S. Army Corps of Engineers, which has increased funding for their military base upgrades. We have initiated several smaller projects based on recent wins that will run through the summer providing sustainable revenue as well as new and much needed references for new and future DoD projects. We believe we're well positioned to support the large U.

S. DOE, our Department of Energy opportunities currently in the procurement process for the three major sites, which are ongoing over the next eighteen months. Leveraging our demonstrated and mature technologies at our three facilities allows us to reduce on-site waste processing, provides risk reduction within DOE's facilities, and it also integrates the ability to accelerate their baseline schedules without increasing cost to the project. We're also expanding our role in the oil and gas markets in Pennsylvania, Ohio and West Virginia for the treatment of natural occurring radiological material waste, also known as NORM waste, which can be difficult waste stream for oil and gas producers and is a significant byproduct of fracking. We have a new analytical lab in West Virginia within the heart of the Marcellus Shale region, providing twenty four hour analysis for the industry, significantly reduced costs over a traditional laboratory.

That lab, which is now certified by the State of West Virginia, allows the driller to quickly and more efficiently determine the soil paths for waste generation during operations. Finally, as discussed last quarter, we have virtually eliminated costs within our medical subsidiary and are focused on a partnering strategy. We'll further discuss that updates at the appropriate time. So to wrap up, Perfectix is positioned to complete 2018 with a strong funded backlog and opportunity for sustainable growth through 2019. Our sales pipeline is strong, and we continue to identify opportunities for bidding that align with our core competencies.

As a result of our facility upgrades and technology deployments, we are very well positioned to support large procurements within the DOE market as well as providing continued support to the test bed initiative at Hanford, providing the potential for significant positive impacts to our revenue over the next several years. Importantly, several of our projects are working on and can be quite significant and potentially transform our business when they are materialized. On that note, I'll turn the call over to Ben, who will discuss the financial results in more detail. Ben? Thank you, Mark.

Starting with our revenue. Our total revenue from continuing operations for the third quarter was relatively flat at $12,000,000 compared to 11,800,000.0 in the third quarter of the prior year. Our service segment revenue increased by $478,000 or 19.9%, which was offset by a reduction in our treatment segment of $252,000 or 2.7%. Our Service Segment produced higher project based revenue due to the increased scope in our current projects. Our Treatment Segment did see an increase in revenue, as Mark mentioned, at our three other operating plants, but this increase was offset by a drop in revenue at M and EC year over year, which recognized 578,000 of revenue in 2017 and only $23,000 in 2018.

For nine months ending September 30, our total revenue was $37,800,000 compared to $37,200,000 in the prior year. As with the quarters, our services revenue exceeded prior year, while our Treatment Segment was lower than prior year due to the reduction in revenue at MEC from the closure. Similar to our revenue, our cost of sales were relatively flat at $10,200,000 compared to prior year costs of 10,000,000 In this quarter, we booked an additional $1,100,000 of reserves related to the M and EC closure, and that compares to $550,000 in the 2017. Our gross profit for the quarter increased slightly by to $1,800,000 compared to $1,700,000 in 2017. And the impact of the $1,100,000 reserve for the M and EC closure negatively impacted this gross profit.

Excluding this reserve, in Q3 of this year and the reserve we booked last year, gross profit would have increased by approximately $623,000 Year to date, our gross profit was $7,200,000 compared to $6,800,000 last year. Again, this gross profit includes increased closure reserves at M and EC in both 2018 and 2017 of $2,300,000 and $550,000 respectively. And when we exclude when excluded, this reflects an improvement in our gross profit of approximately $2,100,000,000 on comparable revenue. Our G and A costs for the quarter were 2,600,000,000.0 which is consistent with prior year as we see reductions in consulting and property rental expenses, which were offset by higher labor costs in our sales and marketing. For the nine months ended September 30, SG and A costs dropped by approximately $276,000 due to lower labor, consulting and property rental costs.

We had a loss from continuing operations net of taxes of $1,000,000 in the quarter compared to a loss of $1,900,000 last year. M and EC related closure expenses for this quarter were 1,100,000.0 as mentioned, and they were $1,200,000 in Q3 of 'seventeen. Excluding these expenses, would have produced an operating income from continuing operations of $58,000 compared to a loss of $651,000 in 2017. In the third quarter of 'eighteen, the company booked a tax benefit of approximately $1,400,000 relating to tax losses and the NOL valuation resulting from the closure of the M and EC plant. We had a net income attributable to common shareholders of $221,000 compared to last year's net loss of $2,000,000 For the nine months, our net income attributable to common shareholders was $965,000 compared to a loss of $3,900,000 in the prior year, an improvement of $4,900,000 We had net income per share for the quarter of $02 compared to a loss per share of $0.17 in the prior year.

And for nine months, our net income per share is at $08 compared to a loss per share of $0.34 last year. Our adjusted EBITDA from continuing operations for the quarter, as we defined in this morning's press release, was $510,000 compared to 654,000 last year. Turning to our balance sheet. As compared to our December 3137, our cash balance at the end of the quarter was $793,000 down from $1,100,000 at year end, reflecting the spending on the closure activities at M and EC. Collectively, our accounts receivable and current unbilled receivables dropped approximately $800,000 reflecting our improved collection and billing efforts.

Our current liabilities were up 617,000 reflecting an increase in the closure reserve at M and EC. Our backlog at the end of the quarter was $9,400,000 compared to $7,700,000 at year end and up comparatively from $6,800,000 in September. Our current closure reserve related to M and EC facility was approximately $1,000,000 Our total debt at the end of the quarter was $4,400,000 net of debt issuance costs, of which is owed to our primary lender, PNC Bank. Finally, I'll summarize our year to date cash flow activity at the end of the third quarter. Our cash provided by continuing operations is $1,000,000 Our cash used by discontinued operations was $68,000 Cash used in investing activities of continuing operations is $1,100,000 Cash provided by investing activities of discontinued operations is $54,000 and cash provided by financing was $384,000 representing primarily our monthly payments to the term loan of 915,000 and borrowing on our revolving line of credit of $1,200,000 With that, operator, we can open the call to questions.

Speaker 0

Great. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press 2 if you would like to move your question from the queue. Our first question here is from Philip Shen from ROTH Capital Partners. Please go ahead. I'm sorry, Philip, your line is live. Perhaps you're on mute by accident.

We'll move on to our next question here from Bill Neskowitz from Heartland Funds.

Speaker 3

Good morning. You mentioned transformational contracts. Can you elaborate a little bit in terms of what is treatment services both and just perhaps give us some color on that?

Speaker 2

Sure, Bill. Basically, we mean by transformational contracts are ones that are significant enough that would dramatically change the company. And those, as we talked about in the past, are a little bit farther out. Some of those would include the large DOE contracts that are in the process in the procurement process, where we would be on teams. We'd be a junior member on teams with the larger companies.

And those would be transformative. The Testbed initiative would be transformative. And once we get some of these all of our transition over with MVC and our new construction complete, that would be transformative as well. And so basically, Bill, definition of transformative is an impact to the company that would potentially be significant.

Speaker 3

I might have missed this. So M and EC, that facility is finally closed this quarter,

Speaker 2

fourth quarter? It's not finally closed yet. We're about 95% done cleaning it out, Bill, particularly we have to remove contamination from the floors. And we've had a lot of problems that we keep finding more and more. We know where all it is now.

We've got some new technology deployed this week in there to what we call scablet. It's basically taking about a half inch off the concrete floors. Once And we're done that, then we'll do a final survey and verify that it's clean and the regulators will approve that and it will be out. So we're hoping to have all that done by the end the third excuse me, end of the fourth quarter, this quarter.

Speaker 0

Okay. Thank you.

Speaker 2

If there

Speaker 0

are no further questions, I'd like to turn the floor back over to management for any closing comments.

Speaker 2

All right. Thank you. I'd like to thank everyone for participating in our third quarter conference call. As I mentioned earlier, we achieved solid growth and profitability. Our backlog is up.

We've increased bidding activities in our Services segment, and we're working on several large projects within the Treatment segment that can be transformative as we discussed. We look forward to updating you again next quarter. Thank you.

Speaker 0

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