Perma-Fix Environmental Services Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 8 speakers on the call.

Operator

Good day, and welcome to the Perma Fix Third Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host from Investor Relations, David Waldman. The floor is yours.

Speaker 1

Thank you, and good morning, everyone. Welcome to Perma Fix Environmental Services' 3rd quarter 2023 conference call. On the call with us this morning are Mark Duff, President and CEO Doctor. Lou Cenafani, Executive Vice President of Strategic Initiatives and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing Q3 2023 financial results, which is also posted on the company's website.

Speaker 1

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 includes certain non GAAP financial measures. All statements on this conference call other than a statement of historical fact are forward looking statements That is 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.

Speaker 1

Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to In addition, today's discussion will include reference to non GAAP measures. Perma Fix believes that such information provides an additional measurement and 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.

Speaker 1

Please go ahead, Mark.

Speaker 2

All right. Thanks, David, and good morning. We achieved Another solid quarter as evidenced by an 18.4% increase in revenue to $21,900,000 versus $18,500,000 for the same period last year. In addition to our revenue growth, gross profit increased by 48.2% and gross margin increased from 16.6 to 20.8%. Importantly, we achieved net income of $341,000 and EBITDA of approximately $1,200,000 For the Q3 of 2023, the growth in revenue reflects the commencement of several new projects granted earlier this year to support the backlog in both segments and provide growth opportunities into 2024.

Speaker 2

We also improved productivity on certain projects that had previously been delayed from the lingering effects of COVID-nineteen. Our services project continued to meet or exceed expected performance goals and margins due to strong leadership and good client relations. While we achieved Solid year over year growth. We would have generated even strong results had it not been for temporary customer delays in our Treatment and Services segments. Unfortunately, this is not unusual in our business and contributed to a slight decline in our sequential revenue versus the Q2 of 2023.

Speaker 2

However, These projects have since commenced and we believe will contribute to improved results for the Q4 of 'twenty three and heading into 'twenty four. These and other awards are expected to generate significant revenue that would offset projects which will wind down in the 4th quarter. Within the Services segment, we realized several new awards including a $40,000,000 5 year contract with our joint venture Enviro Fixed Solutions LLC by the Buffalo District of the Army Corps of Engineers for environmental remediation at the Niagara Falls Storage Site. The awards Leverage our core competencies, including characterization, remediation and disposition of hazardous material and waste management. Looking ahead, we're benefiting from increased bidding opportunities within our services segment overall, including both the government and the commercial sectors.

Speaker 2

These opportunities include teaming of large DOE projects and procurements in addition to several U. S. Army Corps of Engineers cleanup initiatives, U. S. Navy decommissioning projects and several international projects with sustainable revenue potential.

Speaker 2

These bids will further strengthen our backlog with awards anticipated throughout 2024. Within our Treatment segment, we've Included increased waste shipments from within the commercial sector along with steady sales from our industrial waste programs. We expect to see ongoing improvement in waste receipts And the increase in project work from existing contracts, new contracts and bids submitted in both segments that are still waiting for award. We have continued to implement our growth strategy throughout the Q3 in 2023, including several new opportunities on our target list that have the potential to significantly enhance our revenues and our long term backlog for the next year within both segments. In addition, we continue to await Some very large potential strategic awards by the DOE.

Speaker 2

Some of these projects are quite considerable in size, and And if selected by DOE, we would represent significant increases in sustainable revenue to align with our core competencies. We're hopeful That one or more of these projects will be awarded this quarter. If we are successful, we'll participate as a team member on these large D Week procurements, which completely align with our strengths and innovations in radiological protection and waste management. Despite delays in award announcements, these growth initiatives remain on track, including the $3,000,000,000 operations and site mission support contract referred to as OSMS as well as the Joint Research Council or JRC project in Italy. We anticipate both of these projects will be announced any day.

Speaker 2

In addition, we several other smaller projects anticipated to be announced in the Q4 of 2023. The JRC project will support our expansion program in Europe, including existing IDIQ contracts held by Perma Fix in the UK and the application of our treatment technologies in Germany, Croatia and other markets in Europe. These opportunities will generate sustained receipts Beginning in the next several quarters, providing a combined annual revenue is estimated in the $10,000,000 to $20,000,000 range, which we expect will begin to be realized in late 'twenty four. At the same time, the Test Bed Initiative or TBI also known as the Low Level Waste Offset Disposition Project Continues to progress in support of the Hanford tank mission, although at a slower pace than anticipated over the last few months. The TBI initiative, which is based on grouting technology, We'll continue to focus be a focus of Perma Fix as a means of saving tens of 1,000,000,000 of dollars in taxpayer dollars as well as eliminating several carbon emission and reducing schedules for Hanford cleanup actions.

Speaker 2

Grounding has been recognized as a Preferred supplement to the current DOE strategy for vitrification through the direct feed low activity waste treatment plant, what we refer to as the DF Law, for the 59,000,000 gallons of tank waste currently stored at Hanford. The TBI program continues to move forward Following the submittal of the RD and D permit from the DOE to the state of Washington regulators, which was done in the Q2, we're continually we're currently Awaiting the approval of the RD and D permit from the Washington Department of Ecology, which is the regulator, which will allow DOE to begin to extract 2,000 gallons of waste from the tanks for the Phase 2 grouting demonstration. Given the ongoing delay by the state and review of the permit application, we expect an official reset Of the schedule, which will include public comment on the permit, followed by approval, extraction of the waste and treatment of 2,000 gallons, which is expected to be in the second half of 'twenty four now. Perma Fix maintains these grounding capabilities today at our Perma Fix facility In Northwest, in Richmond, Washington, which is permitted and outfitted to safely and compliantly grout up to 30,000 gallons a month With the ability to expand to well over 1,000,000 gallons annually while dramatically reducing cost, risk and schedule compared to Vitrification alone.

Speaker 2

It's important to note that our Perma Fix Northwest facility offers the only local or regional option for grounding tank waste versus other options to ship untreated waste out of state for grouting disposal, which is defined as a higher risk and the NEPA environmental assessment as well as the recent WEIR documents. Another critical component of Fermfic's growth strategy hinges on the start up of the DFL facility I had mentioned in Hanford, which will provide vitrification services for about 40% of the tank waste volume on-site. In January 23, DOE signed a record decision to treat the effluent Waste streams from the DFLAW facility at our local Perma Fix Northwest facility for at least the 1st 10 years of the DFLAW operations. We remain optimistic about reports coming from DFLO in regards to the start up of the melters and supporting systems, which continues to progress. While several steps remain before startup, DOE has announced has not announced further delays in commissioning, which is currently scheduled for the late 2024 timeframe.

Speaker 2

The waste that would be produced at this facility is estimated by DOE to be about 9,000 cubic meters annually. We expect that would begin to be received at the Perma Fix facility upon a hot start up of the vitrification plant itself. As I've mentioned in the past, the volume of this waste has more than doubled the production of all our plants combined on an annual basis. In regards to our treatment facilities, our Florida and Washington plants have begun to realize the budgeted performance goal we haven't seen since pre COVID times as labor and pricing impacts are beginning to be in the rearview mirror at this point in time. At our DSSI facility in Eastern Tennessee, we have implemented several expansion and upgrade activities that have been underway for the past few months, which we expect will result in a broader offering of our treatment capabilities beginning in the second half of twenty twenty four.

Speaker 2

Importantly, we continue to invest in our capabilities in our facilities. We've built a solid foundation of

Speaker 3

growth

Speaker 2

in highly scalable infrastructure. As we continue to increase revenues, we expect to benefit from the predictable cash flows of our Services segment with high incremental margins within our Treatment segment. So to wrap up, we remain optimistic that the remainder of 2023 2024 will realize continued growth In both segments, as we expand our market base and develop strategic teams to optimize win probabilities for ongoing procurements, We're heavily focused on increasing productivity and reducing costs to maximize our margins along the way. Overall, we remain confident in our ability to maintain the growth And stability we experienced prior to the pandemic and we're highly encouraged by the near term market outlook for the business based on our growing backlog, Our sales pipeline and a number of important contracts expected to be awarded over the next few quarters. So on that note, I'll turn the call over to Ben, Who will discuss the financial results in more detail.

Speaker 2

Ben?

Speaker 3

Thank you, Mark. Our total revenue from continuing operations The 3rd quarter was $21,900,000 compared to last year's Q3 of $18,500,000 That's an increase of $3,400,000 or 18 0.4%. The improvement came in revenue from both our segments as our Treatment segment revenue improved by 1,900,000 Primarily on higher waste volume though at a lower average price. And our service segment increased by 1,500,000 Based on improved productivity at one of our current large projects and additional revenue from new projects that started in the quarter. Year to date through September 30, our revenues higher than prior year by $13,200,000 or 24.5%.

Speaker 3

Again, this improvement has come from both segments. The Treatment segment revenue increased by $8,500,000 primarily on increased volume, while our Services segment revenue was up $4,700,000 on increased project work. Our gross profit for the quarter was up $4,500,000 compared to $3,500,000 compared to $3,100,000 In 2022, the improvement in gross profit of approximately $1,400,000 came from the Services segment, where Gross profit was up $2,000,000 from both increased revenue as well as improved profitability on our projects. Offsetting this increase was a reduction in the Treatment segment gross profit of 473,000 due in part to revenue mix as well as increased fixed costs at our facilities. For the 9 months ended September 30, our gross profit was $12,100,000 compared to $7,600,000 in prior year.

Speaker 3

Again, our gross profit improved in both segments as the Service segment increased by $3,400,000 on higher revenue and improved Productivity in its projects, while the Treatment segment increased by $1,100,000 primarily on higher volume. Our G and A costs for the quarter were $3,900,000 which is consistent with Q3 last year. Increased costs for labor and legal fees were offset by savings in audit and other third party service providers. For the 9 months ended September 30, SG and A expenses were $11,000,000 again in line with $11,000,000 in the prior year. And as with the quarter, our lower audit and outside service costs were offset by higher payroll expense.

Speaker 3

Our net income for the quarter was $341,000 compared to last year's net income of 664,000 However, I want to remind you that last year's net income included employee retention credit of $2,100,000 which improved those earnings. For the 9 months ended September 30, our net income was $404,000 compared to a loss of $2,100,000 in prior year. Our income per share, basic income per share was $0.03 compared to income per share of $0.05 last year. Year to date basic income per share is at $0.03 compared to a loss per share of $0.16 last year. Adjusted EBITDA from continuing operations as we defined in this morning's press release is at $1,200,000 compared to a loss of $374,000 last year.

Speaker 3

Adjusted EBITDA year to date was 2 $900,000 compared to a loss of $2,200,000 in 'twenty two. Turning to the balance sheet. Our cash on the balance sheet It's at about $2,000,000 consistent with last with year end of $1,900,000 Our accounts receivable and unbilled receivables were up $9,300,000 due to increased revenue, certain prepaid contract and the general timing of our cash receipts. Accounts payable, accrued expenses and accrued disposal collectively were up approximately $2,100,000 reflecting increased costs associated with increased revenue and the timing of vendor payments. Our unearned revenue was up approximately $3,000,000 compared Prior year due mostly to this certain prepaid contract.

Speaker 3

As of September 30, our waste backlog And unearned revenue was $12,100,000 significantly improved from the $9,200,000 at year end and $7,100,000 in September of 2022. Our total debt at the quarter end was 3,200,000 Excluding debt issuance costs, which is owed primarily to P&C Bank. Finally, on cash flow activity for 2023, Our cash provided by continuing ops was $452,000 Our cash used in discontinued ops It's $478,000 Cash used for investing of continuing operations was $1,400,000 for cap spending. Cash provided from financing was $1,900,000 and that represents the net of our monthly payments To the term and capital loans of $450,000 payments related to finance lease and other debt of 310, Proceeds received in the reload of our term loan in July of $2,500,000 and receipts from other options and expenses of 150,000 With that, operator, I'll turn the call over for questions.

Operator

Certainly. The floor is now open for questions. Your first question is coming from Howard Brous with Wellington Shields. Please post your question. Your line is live.

Speaker 4

Thank you. Mark, Ben Lew, I hope you're all well and your family as well, first of all and most important.

Speaker 2

Thanks Howard. Appreciate that. They are good.

Speaker 4

Good to hear it. So what I'd like to get a sense of or a better sense of, When you look at the contract, you talked about OSAS, Croatia, Italy. What does it all mean to Perma Fix initially and over time? And include What I believe is another contract coming from the EPA on uranium. So let's begin with that, please.

Speaker 2

Yes, Howard. The way we look at it is the company is really in a position to maintain Pretty sustainable foundation of revenue in the $90,000,000 a year, dollars 100,000,000 a year range. Generally from winning projects repeatedly, we may have some down quarters and some up quarters, but just generally, That's kind of our base load that we should be able to do with the waste that's generated out there each year along with Winning a number of projects within our statistical average. Then we have procurements and opportunities That will pull us above that. And those opportunities you mentioned a couple of them OSMS, which is in a procurement situation that we can't really talk too much about the numbers associated with it.

Speaker 2

And JRC, same situation Hi, and ITDC. All those are would provide a plus up or a bump up in revenue in a significant way. JRC is a little smaller in the $40,000,000 to $50,000,000 range, but opens up A couple of markets for us in a bigger way in Europe. And so as far as the dollar per share, it's very difficult To address that, because we can't get into the financial components of it, but they have they'll have significant impacts on overall revenue stability. And equally as important, put us in a position where we can bid on other larger contracts with a qualification that is very valuable.

Speaker 2

So we have a number of those waiting to hear on. As you know, those 3 are the primary ones. We have several other smaller ones that we're waiting to hear on, including Bids at the Corps of Engineers, abandoned uranium mines have all been extended. The project that we have in Arizona It was supposed to run out in August. It got extended through the end of this month or into the middle of November.

Speaker 2

And it will shut down for the winter because of the altitude the mine is at and it will start back up in the spring. The EPA has informed us that there'll be additional mines procured over the winter to start in So they are finally starting to get some traction on new procurements. But we add to that a list a long list of bids That we're working on through the winter that will be likely awarded in the spring summer of next year that are very large. We've mentioned some of these on here before. Those opportunities include the enterprise, which we expect out the aircraft carrier that we expect out here In Q4 in late Q4, early Q1, a large project at Y-twelve, West Valley DOE project, which is a $3,000,000,000 project, which we're getting on Teams for several IDIQ task orders through DOE Contracts and several large waste contracts that we're expecting to be able to bid on to see the impacts again Q2 time frame.

Speaker 2

So lots of we're very optimistic That our growth opportunities continue to come in. We're not going to win everything, but we should win Statistical quantity that's good. The more that come in the better. We have revamped our business development group and brought on some new people. They're very high energy, very well respected in the industry and are turning over a lot more rocks for us in regards to opportunities And the radiological world, including expansion into the commercial sector in a bigger way.

Speaker 2

So overall, we do remain very optimistic about our future. Well, this quarter was not what we wanted it to be overall. We did take a step back, but we still have the same momentum And we expect to get back on that trajectory in the near term. So hope that answers your question.

Speaker 4

So the Tisker, and I'm not sure how many gallons are in Tisker right now. My understanding is about 700,000 gallons. My understanding is from the DOE that that volume is non compliant for the vitrification plant. Is that a correct statement?

Speaker 2

That is a correct statement, Howard. There's been a couple of press releases about that just in the past 2 weeks. Apparently, Atisko worked exactly as planned. They pumped the waste out of the tank and pumped it into another tank. And what appears to be the case is that the other tank contaminated The liquid after they pumped it in.

Speaker 2

So in sampling the tank, they've got The roughly 700,000 gallons stored in, it will not meet the waste acceptance criteria for DFLAW. So DOE has said that they're evaluating alternatives. One of those alternatives that they mentioned in the press release was that they would run it through Tiskor again. We are trying to which obviously would just tie Batiska up for a while and cost money to redo it. We're proposing that they grout that waste and dispose of it.

Speaker 2

DOE has not made a decision on that yet And we're hopeful they'll see the value in that in disposing of that waste While they're able to pump other tank waste out. But at any rate, the situation does not impact The DFLAW, as I understand it, there's plenty of time for them to pump another 700,000 gallons before DFLAW needs it. So There is an opportunity here hopefully for DOE to consider an alternative other than to rerun it At this point.

Speaker 4

You mentioned the rod that basically is a roughly a 10 year contract. Where else can the Department of Energy go if it's not just 10 years, but is this not a generationally long contract? You've got collectively 56,000,000 gallons high level, low level waste to be treated. And even if you did a treatment with TBI, You're still talking 1,000,000 gallons for the Vit Plant a year, which means 2,000,000, 2,500,000 gallons that you treat. Are they going to build another facility to mimic Perma Fix?

Speaker 4

Or is this basically my belief is This and TDR are generationally long contracts.

Speaker 2

They are generationally long contracts. The bottom line is DOE has not Developer does not plan on developing the treatment capabilities they need to handle the effluent It comes out of DFLaw. So their position, their plan has been for I think the last 10 or 15 years to commercially treat the effluent that comes out of DFLAW as opposed to building on-site treatment capabilities. Fortunately, there is very limited in fact, Really no other alternatives in the Richland area, the area around Hanford, other than what Perma Fix has capabilities To provide, so that's why it was mentioned in the ROD that DOE would use Perma Fix Northwest to support That backlog, as I mentioned, was about 8,000 cubic meters a year. So a pretty sizable amount of waste is all different types.

Speaker 2

It's not Just grouting, it's all different types of processing, different materials that will come out of that plant, and we remain optimistic that They're on track for late 2024. You may have seen a press release, I think it was just yesterday that They did turn on their melters. In their latest campaign, the melter got Two different tranches of liquid glass, so to 2,100 degrees and everything seems to be working As designed, so they are continuing to make progress. They haven't announced any slips in schedule. So again, we're still anticipating hopefully that they'll have radioactive waste going through there in the late 2024 timeframe.

Speaker 4

Let me come back to DFLO in a moment. Transuranic Waste is basically another Steph, in terms of what I call a generationally long contract, without specific numbers because I don't think you have them, But what could the total transuranic waste be coming out of Hanford? Because basically the other main, Whether it's Savannah River or others, they're already treating transuranic waste. So is there a sense a global sense over one time frame and potential dollar amount? Or is that not achieved yet?

Speaker 2

Yes. I mean Hanford and mine are saying the Transuranic Waste program programmatically Hanford is pretty close to the tail end Of the transuranic shipments to the waste isolation pilot plant in New Mexico right now. Idaho and Savannah River and Los Alamos are all shipping a lot. Hanford is scheduled to begin later this decade. And right now, Perma Fix provides the primary means of packaging transgenic waste and processing it For WIP.

Speaker 2

So what we're doing right now and it's one of our largest waste streams, is supporting the plateau contract where they ship us Different types of transuranic waste. We have a very advanced system to repackage that waste, put it into Standard waste boxes to minimize the volume. We segregate the low level waste out so that only the transuranic waste goes. It goes back to DOE at the Anford and they store it until it's their turn to ship to WIP. That represents roughly about $1,000,000 a month in revenue and maybe a little bit more than that some months.

Speaker 2

That number is increasing. So it's a good sustainable backlog for us, but there is additional quantity of TRU waste at Hanford It's a higher level of RIO activity. In other words, there are higher gram quantities. That's all to be done And there's a tri party agreement milestone for that. I don't know the total value of that.

Speaker 2

It's somewhere between, I don't know, maybe $50,000,000 range $100,000,000 range that requires removal in a certain time period that It's slipping a little bit here and there due to priorities and funding. That all will eventually come to us most likely. We don't have a contract for it yet, but We certainly had many meetings about it. We anticipate getting that. But the overall transuranic program nationwide is very strategic for Perma Fix.

Speaker 2

There's transuranic waste at Spru up in Schenectady that we recently won a contract. We haven't talked a lot about it. Ideally, we announced an intent award, But we're going through different technical approaches and that's about a $10,000,000 contract to start with. So it's not dramatic, but It's important. But the other big one that's TRU is West Valley.

Speaker 2

That's the one that's coming out right now. So our strengths and capabilities At Northwest, will help our positioning to be on a good team and provide some value to that team for West Valley. So

Speaker 4

Mark, you broke up. Hello? Hello?

Speaker 2

Hello?

Speaker 3

Yes. I don't know what happened. No.

Speaker 4

You there?

Speaker 2

Yes, we're here.

Speaker 4

Okay. Last but not least, when I'm looking at DF Law, Vitrification Plant, TBI. I consider those, although we just talked about DF Law. Basically, the 56,000,000 gallons, is it a fair statement that these are generationally long contracts? After 10 years, they have no other place to go.

Speaker 4

They're not going to build a plant. And if DOE builds a plant, it costs $1,000,000,000 it's government. We understand that. But as we get closer and closer day by day, is it a fair comment that notwithstanding Any further delays, but we're still talking about Q4 2025 for DF Law, And possibly at the same time, grouting TBI and the maximum ability For DFLog to process is basically 1,000,000 gallons of waste a year, which denotes to be 2,000,000, 2,500,000 Waste to you, is that a fair comment?

Speaker 2

We believe that that's a fair comment, Howard, I think the investments we made locally in the Hanford area, the capabilities we've built up, The quality of our team and the recent agreements with the local labor unions Have all positioned us to be a very high value alternative for DOE to provide exactly what we just described, which is Processing and DFLAW Waste, the grouting and other ways on-site and Put Firmafix Northwest in a position where it's the best value alternative for the overall Hanford mission.

Speaker 4

So last comment. Ben, there are a couple of people who have asked various questions about 2025. As DF Law, the Vit Plant is operational for the full year. People have talked about basic earnings Just from that project of roughly $3 a share, whether it's $2.50 or $3.25, but you still feel comfortable assuming that DF Law does start full stream in 2025 or sometime a little bit before. Is that still a fair comment?

Speaker 3

Yes. Howard and this has come up on a couple of calls. And I guess the best way to handle it is to kind of give you an overview of what we are Because this is so substantial to our regular business and game changing when it occurs. What I can give you is that from the metrics we've seen in the rod, we'd be looking at $60,000,000 to 70,000,000 Dollars of additional revenue a year, we'd be looking we believe our incremental range, which we Openly advertised at about 25% variable costs or 75% margin is consistent for this waste stream. The big wildcard is the capital and fixed expenses that would go into growing the company to support this kind of number.

Speaker 3

And We've talked about 100 FT feet feet feet

Speaker 4

feet feet feet feet feet feet feet feet

Speaker 3

feet feet feet Es. We've talked about capital in the $5,000,000 to $10,000,000 range. We've talked about Other expenses, which we typically consider fixed in nature, utilities, insurance, maintenance, etcetera, that's probably another $10,000,000 to 15,000,000 Of cost. So a lot of that, if you shovel all that together, you get some pretty significant dollars Income probably in the $18,000,000 to $25,000,000 range. EBITDA in the $22,000,000 to $30,000,000 range.

Speaker 3

ROI is 200% payback real quick couple of years that might have that. So all that I'll say that it's reasonable to think with all other things that could happen in between that $2 to $3 range is Certainly very achievable.

Speaker 4

That's all I have. Yes. Mark, thank you. Thank you, Lou.

Operator

Your next question is coming from Brian Russo with Sidoti. Please post your question. Your line is live.

Speaker 5

Hi, good morning. Good

Speaker 4

morning, Brian.

Speaker 2

Good morning, Brian.

Speaker 5

Hey, just real quickly on the quarter. You mentioned temporary customer project delays in the Q3, which aren't uncommon that likely get pushed in the Q4. Is there any way to quantify What revenue is being pushed what amount of revenue is being pushed to the right?

Speaker 2

It's difficult to define the quantity of those. Basically what happened was we had a couple of projects that were paused And REAs were negotiated, and we'll be able to make up for some of that, And we'll see some of that in the Q4, but I can't because I can't give you a total amount Revenue that we'll see push into it. I do expect to see a pretty similar quarter in Q4 that we've seen here, which typically takes a step backwards from Q3. But we do have a couple of new projects that are starting up In Q4 as well, we'll assist in getting doing a little better. But We look at it to be pretty flat overall moving forward through Q4.

Speaker 2

Ben, is there anything else you want to add to that?

Speaker 3

No, I think that's fair. Q4 is always impacted by holidays And those things, so there's again a lot of moving parts. But we do expect a lot of What we missed in the 3rd to move into 4th and beyond. Okay.

Speaker 5

Got it. Great. And then just on the segment margins, it seems fairly low relative to what normalized margins are. Is it just a function of The lower revenue and the higher fixed cost kind of dynamic?

Speaker 3

Well, there was It's higher on the service side because of the improved productivity. It was lower on the treatment side and that was a That's a revenue or a waste mix issue. A little higher this time around than usual because We had a good size number of what we call direct ship waste streams that we don't even touch at the plants and they go And we just broke them, so to speak, and that brought the margin down. But we expect it to normalize Going forward.

Speaker 5

Okay, great. And then just on the RD and D permit delays From the DoD permit delays from the Washington State of Ecology, any insight there? Is it just more Procedural or are there any read throughs? Are they taking an extended period of time to review, Which I thought might have been more of a formality. Just wanted to get any insight there.

Speaker 2

Yes. We have no idea, Brian. The bottom line is This is not a big permit. They asked some questions several months ago of DOE. DOE answered them from what I heard and They weren't big questions.

Speaker 2

So it's really difficult to understand why this would take so long, but It certainly has taken a lot longer than everyone anticipated for the state to turn this thing around for 2,000 gallons. It Certainly would not appear to be that big of an effort, but we have no insight whatsoever as to why.

Speaker 5

Okay. And then just any update on the ITTC contract and the options that the That the DOE has either rebidding the procurement again or any other scenarios?

Speaker 2

Yes. That's extremely complicated procurement, unprecedented in nature in regards to What has happened, there's not a lot more information than what's publicly available in regards Status of it other than to say that the DOE did come out with a final proposal revision request. Each of the teams provided a response. The Atkins team did file a protest In regards to that final proposal revision request, that's at the I believe that's at GAO now. And GEO has said, I believe that they're going to make a decision before February.

Speaker 2

What those options would be are very difficult to speculate on other than to say that one could still assume that The options are to award to the Atkins team Or to go out for rebid. And I'm sure with the submittal of that proposal Now or this revision, there's probably an alternative to award again to BWXT, so in other words, anybody could win. So nobody's lost anything yet. No one's won any and it's really wrapped around the axle in protest space. So I wish I could give you some speculation, Brian, but we've got no idea on this one.

Speaker 2

And there's a lot The public including us does not know about the legal situation and what the data is or what the evidence is. So it's just you sit back and wait. There's really not much else we can do at this point, right?

Speaker 5

Yes. No, that's helpful. And then Just to clarify on the DFLAW hot start and ramp up. Hypothetically, if there's a hot start up In late 2024, you won't be at full production or tifla won't be at full production for all of 2025. There's It's more like full year 12 months of production would be more like 2026, correct?

Speaker 2

That's probably a good thing. I don't know when both melters will be operating, But one could assume your statement is correct that any plant that starts off like that is not going to be 100% productive initially. So one would assume your statement is correct that it will start up with 1 melter, at least 1 melter at a time, and it will be a while before all three shifts are Hit on all cylinders and they're maximizing their design basis for 100 for 1,000,000 gallons a year. So I would assume it would be 26.4%. You start to see that effluent come out at that rate.

Speaker 5

Okay, great. And one last question, if you don't mind. I'm sorry if I missed this, but what was the services backlog as of September?

Speaker 3

It's in the $22,000,000 range.

Speaker 5

Okay, great. Thank you very much.

Speaker 2

Thanks, Brian.

Operator

Your next question is coming from Ross Taylor with ARS Investment

Speaker 6

Gentlemen, I kind of want to dig into What I think is the real important issues here, which is we spend a lot of time in minutiae about contracts, but let's talk about revenues and where we're going. Just a bit ago, you indicated that you should be able to do $90,000,000 to $100,000,000 as kind of a base load. You did 21 Or so this last quarter, you're talking about this next quarter being roughly the same. My math tells me that You're operating 80%, 90% of base load on those two numbers. Why Don't we or what's going to take to get to like can Q4 get to that $23,000,000 $25,000,000 you need to have to kind of keep your base load where you want it to be?

Speaker 2

Yes. I was really speaking more annually, Ross, on that. So we had a rough Q1 that pulled us down a good bit. But our goal is to try to hover at a minimum around the 23% to 25% range Every quarter, and that's where our sweet spot is on profitability. Anything below that gets very difficult based on Our fixed costs, so that's typically where we need to be to maximize our EBITDA It is the $23,000,000 to $25,000,000 at minimum each quarter.

Speaker 6

Okay. So and do you can you get there? Do you see you talked about stuff being pushed to the right and the like. Can you get there in this current quarter we're in? Or is that something we're going to need to wait?

Speaker 2

No, I think we're looking at our forecast The next quarter, as I said, we should be equally as good as this quarter, if not a little better. We do have several projects starting up, And it's difficult to predict what the revenues and margins will look like as you roll through the quarter on new projects. But right now, it looks pretty promising To see a quarter at least as good as this quarter, and particularly in regards to revenue. So we're optimistic that we will Continue to see that come back to the trajectory we had last couple of quarters as well and finish out In the $90,000,000 or close to $90,000,000 range for the year. But we're really looking when I mentioned that That goal of $90,000,000 is really annualized on a quarterly basis.

Speaker 6

So

Speaker 2

we're getting into above $22,000,000 or $23,000,000 is what we got to be to really be healthy. And As you know, we dipped a little bit below that this quarter because of those delays.

Speaker 6

Yes. Now In looking at it, it's been a while since we've seen you guys announce a win. You had started the year early on talking about what we could be getting out of Hanford and the VIT. And that obviously It caused a lot of excitement in the name. And since then, we've kind of been stuck waiting for the Inuit operation for So the Hanford stuff for things happening.

Speaker 6

How you've talked about the ability to get you think you can get some new wins or get some of these In this current quarter, how comfortable are you that your ability to kind of Push next year to with the extra business to be able to produce $20,000,000 $30,000,000 or more kind of out of This non core load that we just were talking about?

Speaker 2

Yes, Ross. What you're really Asking about is our growth strategy and as I was mentioning the list of opportunities That we're bidding on these next two quarters, this quarter and next quarter are a significant chunk that we haven't seen this many Big opportunities that we're really well positioned for with high wind probabilities that could be literally be awarded by next summer. So with that in mind, I feel very good about where we're heading and we're very optimistic about it. The way we retooled our ability to bid these things Gives us additional confidence. JRC, we're very confident on we're very confident That we'll know in the next week or 2, I've been saying that since last December, very aware of that.

Speaker 2

But it is It's got to move forward because it's got the remediation contractor has been selected and is ready to mobilize and are just waiting for us to be awarded so we can get going. I was over there last week. I was actually there Monday, Tuesday this week and everything is on track To make an announcement here in the next few weeks. So we're waiting for that to occur there. Once that happens, as I mentioned before, it opens up a lot of opportunity in Europe And it kind of begins the implementation of our overall European strategy.

Speaker 2

As far as OSMS, That one has very significant revenue implications for us because we have such a big piece of scope defined from the overall contract. Again, there are several bidders that's it's got to be considered there. The competition is a lot bigger. And I just can't speculate on when that's going to be awarded other than to say the DOE asked for an 18 day It was extension into November from the end of October. So when they asked for extensions, basically asking you to Maintain your costing without change for another 18 days.

Speaker 2

So I got to believe that's going to come out in the next week or so. So We see these things coming. It's been very frustrating for us not understanding how to plan for them. But in the meantime, the point is that we're Pursuing very, very aggressively other bids and opportunities of the same magnitude and the same impact, and we're Getting on good teams and providing innovation into the proposals that are needed to win. So I do feel like we're going to get a couple of these nailed down in the next 6 months and we'll see those revenues go in the direction that we're Talking to our investors about.

Speaker 2

Thanks for your question, Ross.

Speaker 6

Honestly, Kind of. Because I'm really trying to wrestle with the idea of we've been kind of you've been stuck in it. I understand you can't control this. So I'm trying to get If we get Italy, what does that open up? Because that opens up Europe, that probably opens up Croatia and some other opportunities you've talked about in the past.

Speaker 6

If Italy comes to pass before the end of the year, could we see $20,000,000 out of Europe next year?

Speaker 2

It's not necessarily contingent on the GRC. The GRC piece, It has a big impact in that we have some agreements for building a plant in England with Westinghouse. And because so much time is going by, we'll need to revisit that. Right now, again, I met with him last week. That's all still in place.

Speaker 2

And what it does is provides the backlog for that plant and the ability to move forward with it, which would I'll be able to service all of Europe. Now to answer your question, that's going to take several years to build that plant. However, we have worked several additional Deals with clients in Europe to begin shipping to us irrespective of that plant being there In anticipation of it coming eventually, but the waste backlog in Germany, in Croatia, in the U. K. All such that they have to start moving those waste in the near term and not in a position to wait for that plant.

Speaker 2

So we anticipate seeing Our backlog of international waste growth from where it is right now in the $2,000,000 to $3,000,000 a year range, closer to an annualized receipt In the $7,000,000 to $10,000,000 range by the end of 'twenty four. So again, Croatia is a big piece or excuse me, JRC is a big piece of that, But it's not all contingent on that. And talking to the German clients we have, there's Tens of thousands of drums in storage over there that have to be moved as facilities have reached their capacity And regulatory drivers forced them to move those waste. And we are the only have been only successful Organization has been able to take those waste, treat them in the U. S.

Speaker 2

And return the residues back successfully. So we remain optimistic on that and really feel that By the end of 'twenty four, we should annualize, we should be close to $10,000,000 a year in revenues from Europe.

Speaker 6

From Europe. Okay. And then as we obviously, we just are kind of waiting for Godot on these other issues. When you with that kind of what do you think as a base load that kind of you've talked about Profitability, does Europe come in at company average profitability?

Speaker 2

Correct. Yes, it does. So our treatment our Costs that we provide for or our pricing we provide for the European market is pretty close to what we provide here. And then you tack on transportation costs, but that's pretty much the only options available For most of those folks over there.

Speaker 6

Okay. Okay. Well, I'll let someone come in and ask. Obviously, the soon it's outside of your control, but obviously, think you can tell from today's action investors are getting frustrated and we'd love to see some tangible signs A victory between here and the end of the year to remind us because it strikes me as this is from what you're saying, this is a calendar play. 20 25% should be a pretty powerful year earnings wise as you ramp up everything That's going and you have a chance to have it be hugely powerful if you pick up an enterprise win and some other factors.

Speaker 6

So thank you very much.

Speaker 2

You bet, Ross. And we're very sensitive to what you're saying too. It's very frustrating to us. We the department and most of our government agencies typically Make announcements on Thursdays. Every Thursday that goes by, we all look at each other and say, oh my gosh, another week's gone by.

Speaker 2

And These bids continue to be out there waiting for announcement. And but all we can do is keep our heads down and keep fighting for new opportunities. And I'm very proud of what we've come up with and the direction we're heading in with those new opportunities that Keep those irons in the fire. I appreciate your support.

Speaker 6

Yes. Thank you, sir.

Speaker 3

You take care.

Speaker 6

Keep working at it.

Speaker 2

Thanks, Ross.

Operator

Your next question is coming from William Miller. Please post your question. Your line is live.

Speaker 2

Yes. My question really is, I think all of us stockholders understand that we'd be billionaires of writing RFPs And then generated a bottom line, but they don't. So what I'd like to know is at the end of last quarter, How many RFPs or bids did you have out? Of those who were out, how many were awarded? And of those awarded, how many did you win?

Speaker 2

You constantly talk about our statistical win percentage, but we, the stockholders, just hear about

Speaker 4

stuff.

Speaker 2

So how many bids you got outstanding? How many did you win last quarter? How many did you lose? Let us determine whether you got a future or not. Well, I don't have those numbers in front of me, but I can tell you that we have about $700,000,000 in Potential rev total contract value outstanding.

Speaker 2

And last quarter Q3, we actually had a good quarter. We had we're pretty I don't have the statistics exactly, but we had wins For Niagara Falls, Santa Susana, a couple of commercial clients, Vanadium and Uranium Mines and Ion Beam at Los Alamos and the Spruw job, I would estimate that that would be in the 30% to 40% range of the number of bids we submitted. So there's 2 ways to provide an answer to you. One is, What is the percentage of revenue potential that you want and what is the percentage of number of bids that you bid? And Our goal is typically to get to a 40% win rate on the number of bids that we submit Because sometimes you submit a bunch of small ones and sometimes there's a couple of big ones.

Speaker 2

When you do it the other way, it's not necessarily A value statistic versus how many bids you submitted versus how many wins. So we view a 40% win rate as It's kind of an industry standard in this business and we typically are close to that between 20% 40%. Sometimes It depends on which ones the government or wherever the client is have announced and which ones they haven't. So it's difficult to show to answer your question without a lot of caveats and data. So But we do track that and we can try to provide a little bit more information on the next call in regards to your question.

Operator

And your next question is coming from Stephen Fine. Please proceed with your question. Your line is live.

Speaker 3

Hi, guys. How are everybody?

Speaker 2

Thanks, Steven.

Speaker 7

Can you hear me? Yes, we can hear you.

Speaker 2

We can hear you.

Speaker 7

Okay. How are you all doing? I got a question for on the I have a lot of questions, but on the depreciation and amortization, why was that so dramatically up? I mean, I'm looking at here that for 2023 depreciation and amortization was 2,124 versus 1433. Why is that so significantly up?

Speaker 3

Yes. Steve, that was a unique Situation with our new facility in Oak Ridge, the depreciation we're talking about isn't Your typical capital depreciation, it's the closure related. And there's some closure costs. And the way closure costs work, it's called ARO in accounting lingo

Speaker 2

and

Speaker 3

goes in as an asset against the liability And we just needed to ramp up accelerate the closure number on the balance sheet. You would see an offsetting asset number, yes.

Speaker 7

So that's just it's aberrant.

Speaker 2

It's Just a one time deal?

Speaker 3

Correct. Yes, it will slow down now. All

Speaker 7

right. I do have a bunch of questions. I have not heard about this contaminated Waste that's come out of the that's in the Titskor. So my question there is, Mark, the fact that it's contaminated, does that change the classification of it?

Speaker 2

No. It's not just any classification. It just has a little bit more contamination of a specific kind that is not within The design basis of the DF law.

Speaker 7

Can I ask what the contamination was? Is it something that's hard For DOE to handle or something that they could put again through the TISGR?

Speaker 2

They can put it again through the TISGR I'll try to reduce it. I believe it's radioisotope. It's high. I thought it was cesium, but I have to check the press release. But It's a contaminant from within the tank that they put it in after they ran it through the Tisker.

Speaker 7

But if they would redo it, would they not have tank problems?

Speaker 2

They'd have to put in a different tank, so it wasn't contaminated again.

Speaker 6

Yes.

Speaker 7

Yes. Okay. All right, fine. All right. When Howard was initially asking about how long and this is how long, let's say, Hanford would be, if they did the vitrification and Perma Fix got the secondary waste, is it not true That they have to liquefy the waste.

Speaker 7

So the actual waste is not 59,000,000 gallons. It's probably Closer to 100 of millions of gallons because of the liquefaction and that's why it would take so long.

Speaker 2

That's absolutely correct. It's believed to be about 1 to 3, 1 to 2.5 to 3. So for every gallon that You have in the tank, you're having to add a couple of gallons of water to get it out, because most of the tank waste itself It's either dry or in the consistency, it's going to require a slurry to get it out. So you have to add some to remove it. Correct.

Speaker 7

Going I'm going to move over to Europe. So you succeed in Europe, Would the people be provided by Westinghouse if you created a plan?

Speaker 2

Yes. It would be our technology Westinghouse's facility and license. So it would be a joint venture with Westinghouse. A joint venture with Westinghouse. And is that fifty-fifty?

Speaker 2

It's fifty five-forty 5.

Speaker 7

Okay. All right. So that but the to me the real main thing here is You're joining with somebody who's a big player and that's fabulous.

Speaker 2

That's right. All right.

Speaker 7

With regard to the comments, when we talked about, okay, the vitrification plant goes on and then there's the secondary waste And then the secondary waste comes to you per the rod in January, you mentioned. And then additionally, You're really the only player. In that rod, it states that the waste that you treat it would go back to Hanford. So my question is, has there been work done that that secondary waste could go back and be buried in Hanford?

Speaker 2

For the ZF Law, that's The value that Perma Fix one of the value areas of Perma Fix brings to DOE is that waste, it will be disposed at the Hanford Landfill Phil, as opposed to anywhere else, which makes non regional treatment capabilities a lot less attractive. They've got to ship out of state, have it treated and ship it back into state for disposal. That adds the value The of being local, is that DOE has a disposal sell there for this waste. So, yes, I would

Speaker 7

have Excuse me, my real question was, can it be Post in Hanford if you get the secondary waste.

Speaker 2

The secondary waste has to be disposed of in Hanford as long as it meets the WACC of the land book. Okay.

Speaker 7

All right. All right. I just wanted to okay. I think all my questions were answered. But I've been residually listened to you guys Since somewhere I think in 2016.

Speaker 7

And I remember when you came on, Mark, There was a period somewhere in 2018 or 2019 where you kept saying We're getting there. We're going to move towards $100,000,000 and then you achieved it. And I remember the stock moved And so when I look at history, when I look back at history and having been like I always say, I was a Paz, it is Chemical Manufacturer, so I do understand what you encounter, but I do take your statements So positively that because I've learned to listen to you when you're you've always been very transparent that when you say That there'll be that you do see the possibility that there will be this space in $90,000,000 $90,000,000 to $100,000,000 And that is So critical because that then covers your overhead and so forth and gives you breathing room and then all these other things I look at as, hey, the potential was just so great. And My strategy when I was in business was to have a base business that paid for my business and just keep pushing and then what happens is Something happens that you something happens that just changes the status quo and that's the reality.

Speaker 7

And so I guess what I'm trying to say is, I look at this very positively. You're clearly diversifying. You're clearly bidding more and at the same time you're saying that you do see a vision That you could get to a solid base, which is the key that you're paying your bills and then when one of these other Circumstances occur, then here we go. So again, I commend you guys and I think the it's hard. It's killing the world's hard, but You're taking big leaps and that's all.

Speaker 7

So anyway, thank you.

Speaker 2

All right. Thank you, Steven. Appreciate it.

Operator

Unfortunately, that's all the questions we have time for today. I would now like to turn the floor over to Mark Duff for any closing remarks.

Speaker 2

Okay. Thank you. I'd like to thank everyone for participating in our Q3 conference call. We remain extremely confident in the outlook of our business, and We appreciate the continued support of our shareholders and look forward to providing further updates as developments unfold. Thank you, everyone.

Operator

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

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Earnings Conference Call
Perma-Fix Environmental Services Q3 2023
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