Perma-Fix Environmental Services - Earnings Call - Q4 2020

Transcript

Speaker 0

Good day, everyone, and welcome to today's Perma Fix Fourth Quarter twenty twenty Conference Call. At this time, all participants are in a listen only mode. Later, you will have an opportunity to ask questions during the question and answer session. Please note this call may be recorded. It is now my pleasure to turn today's program over to Natalia Redman.

Speaker 1

Thank you, Emma. Good afternoon, everyone, and welcome to Permafix Environmental Services fourth quarter twenty twenty conference call. On the call with us, this afternoon are Mark Dove, President and CEO Doctor. Lou Santofanti, Executive Vice President of Strategic Initiatives and Ben Naccaratto, Chief Financial Officer. The company issued a press release this morning containing fourth quarter twenty twenty 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 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 of Vericon forward looking statements. In addition, today's discussion will include references to non GAAP measures. FarmerFig 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 like to now turn over the call to Mark Duff. Please go ahead,

Speaker 2

All right. Thanks, Natalia, and good afternoon. We generated solid revenue growth and achieved profitability for 2020 despite the impacts of COVID-nineteen on our Treatment Segment. We attributed these results to the strength in our nuclear services segment and our ability to maintain fuel operations throughout the pandemic. I'm very proud of the fact that Perma Fix successfully implemented our revised COVID safety plan while continuing to meet the needs of our clients during a period of time in which they were largely working from their own homes.

In addition, we have also improved our approach to worker safety and health programs in our plants and field operations throughout 2020, having achieved an important milestone of over four hundred thousand hours without an OSHA recordable incident. This milestone is significant in our business as the safety record reflects the focus and dedication of our team to ensure conscientious work performance and attention to detail, which directly drives productivity in the field. Turning to our results. Revenue increased 43.5% over 2020, and we achieved an adjusted EBITDA of approximately $5,400,000 and net income attributable to common stockholders of approximately $2,900,000 for the year. This was accomplished despite significant reductions in waste receipts associated with waste generator shutdowns over the last nine months.

As we enter 2021, we're continuing to realize sustainable revenue in our Services segment with waste receipts increasing, particularly in March, but will not likely get to normal levels until June timeframe due to the slowdown of waste generation activities and procurement announcements throughout the industry. In general, Perma Fix's performance in 2020 continues to reflect the improvements that have been made and implemented regarding our personnel and our supporting systems and technology offering and our business development organization. With total revenue for 2020 exceeding $105,000,000 this is the best year we've reported since 2012, which was a period in time that was enhanced by the Obama era stimulus program. Our 2020 EBITDA performance of over $5,400,000 was our best since 2011. It's also worth noting we've maintained SG and A costs at a level pace of around $11,000,000 which is within 10% of our three year rolling average, demonstrating our ability to maintain our variable costs and performance in a down market.

Overall, Perma Fix is bullish on our future based on the overwhelming volume of procurements we've submitted throughout Q1 and into and through Q2 as anticipated. Many of these procurements are directly aligned with our technologies and waste management solutions to provide us the opportunity to discriminate ourselves and remain competitive on both costing and management approaches. With hundreds of millions of dollars in bids currently submitted within the last quarter and awaiting award, we have a six month forecast of over $100,000,000 in procurements and task orders to be bid through our existing IDIQs and anticipated projects on the horizons that we're just waiting for RFPs on. We've been developing four or five proposals simultaneously throughout Q1 and have leveraged the new technical and management talent that's joined our firm over the past few years to integrate leadership and enhance approaches to solutions both in the field and in our plants. While all these procurements are very competitive and we don't predict the win rate, this type of action reflects a growing market and our capability to identify, position, and develop responses and proposals for these opportunities.

In regards to general market conditions, Perma Fix remains optimistic in our future growth plans based on our visibility over the next four to six quarters. This optimism is supported by our primary client, the Department of Energy, and the direction we're beginning to see regarding the waste management objectives and their policies. A few of these highlights in regards to the industry with DOE include, first, repeated statements by DOE officials that have suggested carryover funds from the government from 2020 are beginning to become evident in the DOE facilities in the form of new projects that require fast responses and innovative solutions to address some of the larger challenges within the waste management groups. This activity has resulted in an increased number of proposals, both for nuclear services and in the waste management, waste treatment side of the house. Second, several large DOE procurements, including Oak Ridge closure and the integrated tank disposition contract, which was formerly known as the tank closure contract, which have been recently published for bid, include requirements for comprehensive waste treatment solutions, as well as end state contracting models, which support innovation to technology applications achieve success.

In addition, these large bids with values in the billions include aggressive small business subcontracting requirements for what they call meaningful work, which is defined as project oriented scopes of work as opposed to staff augmentation types of support. This plays well into Permafix offering to provide value oriented solutions. We remain a small business we will remain a small business for the foreseeable future as well. And third, continued progress at Hanford regarding contracting decisions and opportunities to leverage our advanced capabilities to solve large scale waste management problems at the site. This includes our Testbed initiative, or TBI, which continues to offer a supplemental alternative to DOE to assist in the large waste tank disposition project at Hanford.

As we've stated the past few quarters, Permafix has built a very strong team of waste management and health physics professionals, along with staff that are dedicated to growth and innovation for our clients. This is evident by our most recent project, which addressed a release of radiological source within a research hospital in Seattle, where Perma Fix provided a complete recovery and release solution back to the public and to our clients. We're expanding this experience and associated strength to other opportunities that we're currently bidding right now and have a great reference. This foundation and the supporting reference will continue to generate opportunities in our industry and provide unique solutions to our clients as well as we pull out of this unprecedented pandemic. Completing another solid quarter while increasing revenue over 2019 and teeing up 2021 with positive momentum underscores the strength of our company and our ability to adjust our vision to meet market needs and changes.

On that note, I'll turn it over to Ben, who will discuss our financial results in a little more detail. Ben?

Speaker 3

Thank you, Mark. Beginning with revenue. Our total revenue from continuing operations for the fourth quarter was $28,300,000 compared to last year's fourth quarter of 22,100,000.0 that's an increase of CAD6.2 million or 28.4%. The increase, as you said, was led by our Services segment, where revenue increased by CAD10.8 million over the prior year as the company continued to operate on numerous projects in both The U. S.

And Canada. The increase was offset by a drop in our Treatment Segment revenue of CAD 4,600,000.0 as waste receipts at our treatment plants continued to be impacted by the COVID-nineteen pandemic. For the year ended 2020, our revenue was $105,400,000 compared to $73,500,000 in 2019. As with the fourth quarter, the Service segment was the main driver of this increase as revenue increased $42,200,000 or 127.5%. Despite the ongoing COVID pandemic, our projects did continue to operate during most of the year, generating increased revenue, which offset the drop in our Treatment Segment of CAD10.3 million.

Following a strong start to 2020, the impact of COVID significantly impacted our waste receipts throughout both the second through the fourth quarters, resulting in a year over year drop in revenue of approximately 25%. Turning to cost of goods sold, our cost of sales was $25,200,000 in the fourth quarter compared to $17,400,000 in the prior year, an increase of $7,700,000 or 44.3%. This significant increase in project work in the service segment resulted in increased payroll, travel and subcontractor expense. Headcount increased approximately 15% over the prior year, while increased by approximately 82%. Conversely, the Treatment Segment lowered costs in transportation disposal and material and supplies related to processing approximately 31% less volume in the quarter.

Year to date, the cost of sales was $89,500,000 compared to $57,800,000 in 2019, an increase of $31,700,000 or 54.7 percent. As with the quarter, increased project work resulted in higher payroll related costs from 22% increase in headcount, 121% increase in per diem days paid, over CAD15 million in subcontractor expenses and over CAD4 million in materials and disposal expenses. The Treatment Segment processed 22% less volume, which resulted in lower transportation disposal and labor expenses. Our gross profit for the quarter was $3,200,000 compared to $4,700,000 in 2019. The drop in gross profit of approximately 1,500,000 was the result of a change in the revenue mix as 80% of the quarter's revenue was from the service segment compared to 53% in prior year.

Project work in the services group is generally more competitive and brings lower margin than does the Treatment segment. For the year ended 2020, gross profit was $15,900,000 compared to $15,600,000 in 2019. Again, despite the large increase in total revenue, the mix was 71% services work in 2020 compared to only 45 in 2019, which resulted in a small increase in gross profit, but a drop in gross margin from 21% to 15%. Our SG and A costs were $2,800,000 compared to $3,300,000 in the fourth quarter last year, while G and A costs for the full year were $11,800,000 compared to $11,900,000 in 2019. Lower travel and trade show expenses, which occurred as a result of the COVID pandemic and bad debt expenses were down, which offset increases in payroll and health insurance benefits.

Our net loss attributable to common shareholders for the quarter was 10,000 compared to last year's net income of $9.30. For the year ended 2020, 12/31/2020, net income attributed to common shareholders was 2,900,000.0 compared to income of 2,300,000.0 in the prior year. Our basic income per share for the quarter was 0 compared to $08 in prior year and our income per share for the year ended 12/31/2020 was $0.24 a share compared to $0.19 in the prior year. Adjusted EBITDA from continuing operations as we defined in this morning's press release was $709,000 compared to $1,700,000 last year. And for the full year, adjusted EBITDA was 5,400,000 compared to $5,200,000 in 2019.

Turning to the balance sheet. Our cash was $7,900,000 compared to CAD390000 at the 2019. Our current receivables accounts receivable and unbilled collectively were up CAD3 million reflecting the increase in revenue primarily from the service segment. Our current liabilities were up CAD7.9 million reflecting the increased operations in the Service segment, timing of payments and the current portion of our PPP loan, which was not forgiven at year end. Our waste backlog was $7,600,000 compared to $8,500,000 at year end 2019.

Our long term liabilities were up $1,300,000 compared or primarily from the inclusion of the long term portion of the PPP loan, which is yet to be forgiven. Our current debt, excluding debt issuance costs was $3,600,000 with $427,000 due to our primary lender PNC Bank under the term loan and $3,100,000 due to PNC for the PPP loan. Total debt for the year end was $6,800,000 excluding debt issuance costs with $1,500,000 due to our primary lender P and C and the term for the term loan and $5,300,000 for the PPP loan. Our working capital was $3,700,000 compared to $26,000 at year end 2019. Finally, I'll summarize cash flow activity.

Cash provided by continuing operations was 7,900,000.0 Cash used by discontinued operations was $499,000 Cash used by investing activities was $1,700,000 most of which was capital spending. Proceeds provided by discontinued operations was $118,000 which was primarily for the receipt of loan payments related to the sale of our former Michigan property. Cash provided by financing was $1,900,000 consisting of the PPP loan of CAD 5,300,000.0 less our monthly term loan payments of CAD 420,000, our net payments to the revolver of CAD 321,000, our net payments to pay off a shareholder loan totaling $2,000,000 and then other lease and financing costs of 800 or payments of $800,000 With that operator, I'll now turn the call over to questions.

Speaker 0

And we will take our first question from Howard Boris. Your line is open.

Speaker 4

First of all, let me congratulate you on achieving a $100,000,000 in revenue. Mark, Lou, Ben, in spite in spite of COVID and everything else. So first, congratulations. And also, Ben, congratulations on your joining the board of directors of ProGenesis Pyrogenesis. Excuse me.

So first of all, and hopefully everybody in the family as well and everyone in the firm, any COVID issues?

Speaker 2

No, Howard. It's good to hear from you. No, everybody's good. We have zero COVID cases in the company right now, which, you know, that wasn't the case several months ago. But we are to zero, and many, many folks are getting vaccinated.

So we're we're hoping to stay on top of that trend.

Speaker 4

Good. Congratulations, Mark. I'm glad to hear that's that's critically important. In your announcement today, and I just want to address one issue, and I'm quoting from your announcement, Moreover, we are rapidly advancing several initiatives with the treatment segment that we believe have the potential to significantly enhance our revenues while establishing increased market share and large backlog for waste processing. Can you be a little bit more granular in terms of that comment?

Speaker 2

Sure, Howard. Yeah. You know, we're we're always we always have initiatives going on in each one of our plants to upgrade them and add new capabilities that would expand our inventories and our market share. So we have an opportunity going on at each one of our facilities now. We have a new program in Florida putting in what we call vacuum thermal desorption.

That will significantly increase our capability to take specific kinds of waste that are coming from DOE with limited competition. That should be up and running by the end of the year at latest, more like end of Q3. And that's running very well and very rapidly. We're continuing to complete our construction program at DSSI. It's going to give us more storage capacity and allow us to expand our classified waste program, of which we have a good backlog that we have not received yet because we don't have the space in a classified area.

And then we also have expansion going on at our Ewok facility, some upgrades going on with that for several procurements that we have out, we're waiting here on. And we have some minor modifications going on up in Richland. So altogether, I think that we could see an expansion to start realizing revenue in late Q3 and Q4, but really tee up 2022 for increased waste receipts along with those access to new technologies. We're also looking at we're also seeing increased activity on the international front with several new waste streams being teed up for shipment in the next quarter or so. We should start seeing some by the end of Q2 and getting some real sustainable waste streams internationally.

So we're excited about the waste treatment side of the house. It has taken a beating, as you know. It hasn't come back as fast as we'd hoped. But we are seeing just in the last two or three weeks significant increase in shipments and notice of shipments and RFP activities, proposal activities that give us a lot of optimism that we could be back to normal on waste receipts by the end of Q2.

Speaker 4

Can you define better the financial opportunities rather than the general opportunities in terms of potential revenue? And let's talk about third, fourth quarter and importantly, 2022.

Speaker 2

Third or fourth quarter is gonna be tough to predict. Maybe a million or two, three in revenue impact into this year, but we're hoping between 5,000,000 and 10,000,000 in additional revenue for 2022 as a base. That's along with a lot of other positive trends we're seeing on different existing capabilities, like our water system. We're starting to receive some water now. It took forever to get that whole program rolling, But it's going good now, and we're doing good on the water receipt side and processing side.

So between the VTD and the classified waste and EWOC, I don't think $10,000,000 a big stretch to assume for 2022.

Speaker 4

And that's without any of the big opportunities that we've talked about in the past, correct?

Speaker 2

That's correct. That's new waste receipts. Yeah.

Speaker 4

Right. Last but not least, but still in the same vein, you've heard nothing because I've heard nothing on the Navo issue, have you?

Speaker 2

We have heard nothing.

Speaker 4

Other than

Speaker 2

we're supposed to be seeing task orders any day kind of a thing. We have heard nothing about new task orders yet.

Speaker 4

Again, congratulations to yourself and the team on $100,000,000 in revenue. And that's all I have for the moment. Thank you.

Speaker 2

All right. Thanks, Howard. I appreciate it.

Speaker 4

My pleasure.

Speaker 0

We will take our next question from Chuck Dickerson. Your line is open.

Speaker 5

Dickerson, that is. Thank you for taking my question here. I wondered if you could talk in a little more detail or give a framework of how you're looking at translating or the opportunities to translate service work into additional treatment opportunities. I mean, are are we talking here about you you go and you do some service work and you discover that there's treatable waste as sort of a byproduct of the service you perform that happened to come about? Or is it alternatively a situation where the customer, say DOE or whoever, know, let's say they're so satisfied with the service work that you perform and if it's done reliably that then then they come back to you and say, by the way, we also have some treatment work we'd like to give to you as well.

So how how do you see that that translation unfolding from service into waste treatment opportunities?

Speaker 2

You know, Chuck, we do have several bids or several jobs, I should say, that have included extensive nuclear services work in the field that has resulted in shipment of waste to ourselves to process. The job up in Harborview Hospital, for example, we did the remediation, patched away, shipped it to our facility in Richland, Washington, processed it and got rid of everything. We were full service, cut out a lot of inefficiencies. It worked really well. Other projects will typically do the remediation, and the waste may or may not require treatment.

In other words, if it doesn't require treatment, it can be shipped directly for disposal in a landfill. That's normally the large volume of the waste we have. That's the case. But we're bidding on several jobs right now that does include some treatment and some processing. If there's any way we can ship something like large components to our facilities and do the dismantlement off-site, we will do that.

It doesn't always afford that an opportunity. But to answer your question, most of the time it's one or the other. Either they're doing the waste treatment or we're doing the services. And in the field, if you're doing the services, the nuclear services types of jobs, you're typically shipping the waste direct to disposal, and it doesn't have the opportunity for the treatment overall. But what is we when the real discriminator comes in for our company is we have the waste management people, the professionals, the engineers, that we put on the services projects that are able to manage the waste and minimize the treatment that's necessary and optimize the packaging so that you can go directly to disposal and save money.

Speaker 5

Okay. Great. The only other question I had was, do you have a sense of what percent of your workforce is in the field that has been vaccinated already for COVID? And is that sort of the key item to look at, or is it more you have to look at vaccination across all of your client base as well? And maybe all this is academic come the May or June, as you say, things are expected to start ramping up then.

So maybe maybe it's not a question that's really that important, but just kind of a curiosity as to what percent is already vaccinated.

Speaker 2

Know, Chuck, I'd be just guessing. So we have not polled. We do plan on polling at some point just to see what percentage we're talking about, but we have not done that yet. In East Tennessee, here where we have about a third of the company, it's running around at twenty percent as a population. So I have no idea where our folks are.

I do know in my office here, it's much higher than that. And we have about 40 folks in our office, you know, on the administrative side of the house. But as far as the plans go, I'd just be guessing. I have no idea, I'm afraid.

Speaker 5

Okay. But the waste receipts that you're starting to see trend up, although not back to a normalized level, but starting to trend up a little bit in this month, that may have some correlation, I would guess, to people being vaccinated.

Speaker 2

That's correct. I would assume that as well.

Speaker 5

Okay. Thank you.

Speaker 2

Thanks.

Speaker 0

It appears we have no further questions at this time.

Speaker 2

All right. I'd like to thank everyone for participating on our fourth quarter conference call. As I mentioned earlier, we remain bullish on the outlook for the full year. We appreciate the continued support of our shareholders and look forward to providing further updates as developments unfold. Thank you.

Speaker 0

This does conclude today's program. Thank you for your participation. You may disconnect