Perma-Fix Environmental Services Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 11 speakers on the call.

Operator

The Perma Fix Fiscal First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, David Waldman, Investor Relations, you may begin.

Speaker 1

Thank you, Holly. Good morning, everyone, and welcome to Perma Fix Environmental Services 1st Quarter 2023 Conference Call. On the call with us this morning are Mark Duff, President and CEO Doctor. Lou Cinefani, Executive Vice President of Strategic Initiatives Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing Q1 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 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.

Speaker 1

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

Speaker 2

All right. Thanks, David, and good morning. First, let me take a moment to address the issues associated with the postponement Of this earnings call yesterday, as you know, all relevant information related to the company's filings A filing period must be considered up to the filing of the 10 Q or 10 ks. That said, we received certain new information late on Monday Evening that required us to review for potential financial impacts. We were able to complete the review on Tuesday and are happy to be able to report Our earnings today, we apologize for any inconvenience or impacts associated with this delay, but deemed the delay necessary to ensure The accuracy of our financial statements.

Speaker 2

While 2022 was a challenging year due to the lingering effects of COVID-nineteen pandemic, We believe we're back on the growth trajectory that we were working so hard for. We are finally starting to realize improvements In our performance and the momentum we had prior to the pandemic as evidenced by our results this quarter, I'm pleased to report we achieved a 20 6.3% increase in revenue and an 83.9% increase in gross profit for the Q1 of 2023 compared to the same period last year. Importantly, we also achieved sequential growth of 20% compared to the Q4 of 2022, Even though the Q1 tends to be traditionally a seasonally weak period for us, we saw a steady improvement throughout the quarter, including a strong March, which has continued into the Q2. It's also worth noting that revenue increased Both within our Treatment and our Services segment, the growth in revenue reflects the initiation of several new projects in the Q1 of 'twenty three that Support the backlog in both segments and provide growth opportunities into 2024. As we recently announced, We were awarded 8 new contracts over the past few months, totaling approximately $15,000,000 of revenue that's expected to be recognized in 2023 With additional optional option phases that have a potential value of over $14,000,000 moving forward.

Speaker 2

These projects include the deployment of our soil sorter technology for providing a remediation solution to the abandoned uranium mine program through the EPA, as well as the remediation of dredging sediments for the Department of Defense in San Diego. Other new contracts have been initiated in support of The Los Alamos National Lab and providing innovative technology for on-site decontamination support for the decommissioning of a nuclear power plant. In addition to this new backlog, we've realized significant increases in bidding activities with recent opportunities requiring our core competencies in support of DOE remediation programs as well as the Army Corps of Engineers cleanup initiatives, U. S. Navy decommissioning projects and several international projects with sustainable revenue potential.

Speaker 2

Within our Treatment segment, we benefited from a steady improvement in waste receipts. This was a result of increased waste shipments from DOE and expanding our current waste treatment offering to the commercial utility sector, along with the oil and gas markets and the growth in our industrial waste programs as well. We recently a new IDIQ contract with a regional power utility to provide waste treatment services over the next 5 years. Once this contract is signed, We will open the this will open the door for new opportunities within utility markets that we've not seen in the past. We expect to see continued improvement in waste receipts And an increase in project work through existing contracts, recently won contracts and bids submitted in both segments that are waiting for awards now.

Speaker 2

We expect this positive trend to continue over the next several quarters as lingering effects of the COVID-nineteen pandemic Continue to subside. At the same time, we're rapidly advancing several initiatives that we believe have the potential to significantly enhance our revenues And our long term backlog, towards this end, we have realized 2 important steps toward the Department of Energy or with Department of Energy in the pursuit of the Hanford Tank Our remediation mission, these include the amendment of the record decision for the direct feed low activity waste facility, DF Law, And the approval of the Waste Incidental to Reprocessing or WEAR report, which represent opportunities to provide large scale waste treatment services These announcements underscore the importance of our role in DOE's strategy for the treatment of Hanford Tank Waste Through the vitrification program that is currently in the final construction phases and start up. This waste estimated by DOE to be over 8,000 cubic meters annually We more than double our current annual production rate at our plants combined. And given the fixed cost nature of our business, we have a significant positive impact from this on profitability over the next 10 years. The outlook of the Testbed Initiative, what we refer to as TBI, which also is known as the low level waste off-site disposal project in support of the DOE Hamper Tank Disposition Program, I continue to be recognized by DOE as a potential supplement to the vitrification mission to provide a solution For the 59,000,000 gallons of Tankways stored at the site, TBI program, which is based on the grounding technology, Continues to progress and we expect to receive the next 2,000 gallons of tank waste within the next few quarters.

Speaker 2

Perfix maintains these capabilities today at our Perfix Northwest facility, which is permitted and outfitted to safely and compliantly grout up to 30,000 gallons per month With the ability to expand to over 1,000,000 gallons a year, while dramatically reducing costs compared to vitrification. We're also pursuing several Additional international waste opportunities that we believe will provide sustainable revenue in the latter half of this year in both the Services And treatment segments, we remain optimistic about the announcement, which could be any day now of a key procurement in Italy That will support our expansion program throughout Europe. This announcement, in addition to the near term opportunities we have in Slovenia, Croatia, Mexico, Canada and the U. K. And Germany will provide an increased market potential that will leverage our technologies and our core competencies.

Speaker 2

In addition, we're pursuing several large waste processing opportunities at large DOE sites that can include Waste inventories that have been backed up due to COVID as well as lack of available technologies to provide high efficiency processing. These ways are expected to provide sustained receipts through the next 3 or 4 quarters, providing an opportunity From $10,000,000 to $20,000,000 potential annual revenue. Turning back to our financials. For a moment, EBITDA in Q1 of Aside from our expectations for revenue growth having a positive impact on our EBITDA going forward, we continue to focus on a reduction in our SG and A expenses and billable and direct operating costs. As a result, we anticipate a meaningful improvement and profitability and cash flow going forward.

Speaker 2

So to wrap up, it's clear to us there is a solid federal budget And a significant backlog of demand that we expect to capitalize on going forward. As a result, we remain confident the balance of 2023 will see a significant improvement Over 2022, and as I mentioned earlier, we're seeing continued momentum heading into the 2nd quarter. We continue to invest in our capabilities and our facilities and have a highly scalable infrastructure and believe that we're in a great position to take advantage of this pent up demand. As we continue to increase revenues, we expect to benefit from the predictable cash flows of our Services segment and high incremental margins within our Treatment segment. As a result, we believe we're well positioned to exceed the performance and profitability we had attained prior to the pandemic through increased bidding activities,

Speaker 3

Thanks, Mark. Let me start with revenue. Our total revenue from continuing operations was In the Q1 was $20,100,000 compared to last year's Q1 of $15,900,000 That's an increase of $4,200,000 or 26 0.3%. Our revenue increased by $2,100,000 in each of our segments as our Treatment segment began to process The increased waste shipments from backlog that we saw trending upward in the last part of 2022. The improved waste volume Received and or process also led to improvement in the Treatment segment, while higher revenue in the Service segment was the result of Increased project revenue.

Speaker 3

Turning to cost of sales. Our total cost of sales were up $17,100,000 in the Q1 compared to 14 point 3, in the prior year that's an increase of $2,800,000 or 19.7%. In the Treatment segment, our variable or incremental expenses were at 25.6 percent of revenue compared to 22% last year, And that's related to higher trends and disposal expenses primarily at our EWA facility. Our fixed facility costs were also Compared to last year, due mostly to depreciation expenses at our Ewok facility as well as Unusually high natural gas expenses in the Pacific Northwest, which impacted our Northwest facility. Our incremental expenses in our services segment were 74% compared to 77% last year due to lower project related expenses.

Speaker 3

Our gross profit for the quarter was $3,100,000 was $3,000,000 excuse me, compared to $1,600,000 in 2022. Again, both segments improved with our Treatment segment improving by $614,000 and the Service segment improving by 700 59,000. The Treatment Segment gross profit improvement came primarily from the higher revenue, But it was offset by a little bit lower margin related to the waste mix and also the fixed facility costs. Gross profit from the service segment was a result of both increased revenue and the improvement in the profitability of our project. Our total G and A costs for the quarter were $3,500,000 or 17.3 percent of revenue compared to $3,400,000 or 21.5 percent of revenue in the prior year.

Speaker 3

The small increase of $64,000 was primarily due to Higher employee benefit expenses offset by lower audit fees, consulting fees and salary. Our net loss for the quarter was $411,000 compared to last year's net loss of 1,300,000 Our total basic loss per share for the quarter was $0.03 compared to a loss of $0.10 last year. Our adjusted EBITDA from continuing operations, as defined in this morning's press release, was income of $171,000 compared to A loss of $1,400,000 last year. I'll turn to the balance sheet in comparison to year end 22, our cash on the balance sheet was $2,400,000 compared to $1,900,000 at the end of the year. Our accounts receivable and unbilled receivable were both up were up combined by 2,200,000 Due to an increase in quarterly revenue compared to our Q4 of last year, our current liabilities We're up approximately 1.9, reflecting increased costs associated with production as well as timing of vendor payments.

Speaker 3

And our backlog at the end of March 23 was $9,400,000 which is consistent with the $9,200,000 at end of last year, but up from the $6,100,000 in March of 2022. Our total debt at quarter end 2023, our cash provided from continuing operations was $1,800,000 Our cash used by our discontinued operations was 190 1,000. Cash used for investing in continuing operations was $748,000 most of which was capital spending. Cash used for financing was $204,000 representing our monthly payments to our credit facility at P and C Of $137,000 as well as payments for finance leases and other financing expenses totaling 67,000 With that, I'll turn the call back to the operator for questions.

Operator

Certainly. At this time, we will be conducting a question and answer session. Your first question for today is coming from Howard Brous at Wellington Shields.

Speaker 4

Mark, Ben, Lou, first of all, I hope that all of you are well and your families as well also.

Speaker 2

Good morning, Howard. Good morning.

Speaker 4

Good morning, Howard. You're very welcome. First of all, congratulations on the quarter And congratulations on the opportunity. Before disclosure, I acted as an investment banker for your Capital raise of $6,200,000 a year ago September and in addition I have to disclose that members of my family own shares My questions focus basically on timelines of opportunities. My understanding and I'd like the confirmation of this, that the vitrification plant should be operational in Q3 of 2024.

Speaker 2

Yes, Howard. DOE hasn't published A recent schedule that I've seen at least, and although there's been several congressional hearings in regards to the Hanford Mission, All indications are they're still on track for the expectation of getting the Diaflaw operational In the second half of twenty twenty four. All

Speaker 4

right. Which basically means revenue from that in 2024. Secondly, it's my understanding and I'd like a confirmation of this that the 2,000 gallon test is expected to take place Basically Q4 2023?

Speaker 2

That is correct, Howard, the current plan seems to be tracking that way. The general status of DOE is Working with the state regulators for what they call our D and D permit, and that basically allows them to pull the waste out of the tank. And once that's done, then we'll be able to start extracting the waste or after it's approved by the state, they can start extracting the waste To get to us and that's expected to be towards the end of this year at this point.

Speaker 4

So Thirdly, we had always expected a 3rd test of 300,000 gallons. And according to the Multiple documents that are out there, particularly the final waste incidental to reprocessing, This is a long title, evaluation for vitrifiedlowactivitywasteandsecondarywaste@theHanford site. In that document, There's several mentions of not having a 300,000 gallon test in 2024. But by implication, And clearly, you're going to need a permit for a larger my understanding is that sometime in 2024 Q3, they will probably go to not 300,000 as a test, but a full scale TBI for 1,000,000 gallons. And I know you would need an additional permit for that and a 60 day It's a commentary, but what are your thoughts about that?

Speaker 4

That's my understanding for 2024, basically Q3.

Speaker 2

Yes. That's largely right, Howard. Generally, DOE, as I think I mentioned in the last call, has what they call a roadmap for the tank mission. And TBI plays a major part in that. It's definitely true that Phase 2, which is the 2,000 gallons, which we just talked about, it should be later this year, was to be followed up with a Phase 3 of 300,000 gallons.

Speaker 2

That phase appears to have faded away, and DOE has talked about moving directly into an operational Phase or what we used to refer to as 300,000 gallons, but generally moving forward the grouting campaign after Sure. The Phase 2 is over. So, Dewey doesn't share that roadmap with us in regards to how it all fits together. We're anticipating that because the regulatory approvals are in place and all DOE really has to do is decide To move forward with that next phase, what we used to call Phase 3, which is an operational phase, that can happen several months after The 2,000 gallons is processed. We want to generate a report on how it worked and the performance of the grouting, that type of thing.

Speaker 2

That will take several months to get all that approved. So it would likely be sometime in late 2024, we'll start to see more of a operational Receipt of waste for grouting, at least that's what we're expecting.

Speaker 4

Okay. National Academy of Science, which is Absolutely in favor of Grouting and their comment is that using Grouting could save the government about $100,000,000,000 Over the period of time, they're having a webinar in Richland, Washington on June 6th to discuss TBI, The grounding method and the fact that this is a massive saving to the government, any comment about that?

Speaker 2

Yes. They have those periodically up in near Hanford and Richland, and we typically attend those and participate as appropriate On those in regards to questions and answers kind of things, we'll definitely be there for that. And they just wrapped up their Final report, last year, I'm not sure that we've had an actual meeting since then, so I assume that they'll talk about that final report in the findings And address with DOE directly what the intentions are for moving forward with grouting as well. So The National Academy of Sciences' support for grouting has been a big boost to the credibility of the program And the analysis they've done in their 500 page report is the basis of a lot of the decisions by DOE to start Considering grouting as a supplement to the DFLAW

Speaker 4

facility. So one comment. My understanding that the unions and the Umatilla tribe have been The bane of our existence for getting movement in TBI, and it's my understanding that both have, One changed their opinion and both have written letters to the various government entities in favor of moving forward with TBI. Can you comment on that, please?

Speaker 2

That is true. That's very true, Howard, and we certainly Appreciate the support on both fronts. So yes, the Unitil's and the UA 598 union there, which is central to That area have both written letters either to congressional delegations of the state And DOE as well, and both endorsing the grouting approach and The support to expedite implementation. So, yes, that's been an important part of moving forward with this to get their support And that plays a big role in DOE's position as well. So that is all true.

Speaker 4

I have one more question and a comment. The question is basically, some people have called me up and asked, well, isn't there competition From other entities like Waste Solutions, Energy Control Systems, and the answer is my understanding is There is no competition. And the reason I understand that is it would take 3, 4, 5 years to get the permits, 2, 3, 4 years to build a plant, that's 1. Secondly, you'd have to cross Probably via rail, the Numantila tribe land and basically you're going to cross with radioactive material That's almost creating a Chernobyl type incident looking at Palatin, Ohio. But it's basically the comment That I've just made, is that a correct statement?

Speaker 2

Yes. The bottom line is that there is not An existing facility in the regional area that has the capabilities to support the grounding that we're talking about, Facility that's permitted, constructed and ready to go. And I think a company would have to go through Getting that permit, which will be very, very difficult, it'll take quite some time, get through the construction and everything goes along with that would Minimum of 5 to 7 years and maybe longer, maybe not even able to get the permit based on the public comment requirements that you have to go through. So it does limit Our competition for a local facility and makes that barrier to entry very high. As far as shipping, you're absolutely right, Howard.

Speaker 2

Shipping raw waste after it comes off the Tisker from the tanks To another facility off-site, which would at least be 600 miles, we'd have to go through the Unitilla reservation And would not be the safest way of handling this as opposed to treating the waste at a local facility, Which is right outside the Hanford fence, basically. So it would not be an often way of doing things and would be I have safety concerns as well as financial issues that would make that much more difficult, which puts our facility there in Richland In a very key position and with very difficult barriers of entry for anyone Not competing with us on that grounding technology for the tanks.

Speaker 4

So my last question of understanding is We talked about 56,000,000 gallons of stuff in 177 tanks. But my understanding via your consultant and others There's probably 200,000,000 gallons that need to be treated because all the water was drained from these tanks years ago And you need the water to implement vitrification. So effectively, you're not Treating 56,000,000 gallons over a very long period, you're treating 200,000,000 gallons roughly. Is that a correct statement?

Speaker 2

Yes, that's exactly right. We don't talk about that much. But basically to save space in these tanks, DOE over the years has Pulled out the liquids, you can add more in there into those tanks and save a lot of money and space if you extract liquids and concentrate The waste you're putting in and that's been done pretty much all the tanks. There's some that have a little bit more liquid than others. But to get the liquids out, you have to add a slurry to the tanks, to the waste material to pull it out.

Speaker 2

So you're absolutely right. Whether it's a 2 or 3 or 4 multiplier, is difficult to say depending on the matrix you're extracting, But that is definitely true that it would be definitely closer to 200,000,000 gallons, but of total material removed from those tanks After you consider the addition of the slurry you have to put in. So, it's important to concept because, remembering that the DFLaw facility It is designed to process about 1,000,000 gallons a year. When you consider how much total waste they've got, DOE definitely is in need of a supplemental technology and capability to be able to treat those tanks in a reasonable amount of time As opposed to just 1,000,000 gallons a year over 200 years. So that is an important point in regards to the inventory and what The backlog or inventory of waste is at Hanford.

Speaker 4

Well, if you guarantee it's 200 years, do you guarantee we'll all be alive by then?

Speaker 2

Yes. No guarantees that Howard.

Speaker 4

I know. Last comment. By implication with TBI and DF Law, you're really talking about revenues and earnings in 2024. Is that a fair comment? And the second point after that, it will be my last, but can you comment about that, please?

Speaker 2

Yes. I mean, 2024 we see a ramp up in late 2024 between DFLAW Waste That you identified in that ROTH amendment and the startup Of TBI and a number of other things, we see a ramp up in 2024 and really to get chugging in 2025. So 2024 will The second half of the year, we would definitely expect to see some increased revenue based on those objectives. There can always be delays one way or the other, But we also have a number of other initiatives that are going around in parallel with those that I briefly mentioned in my notes. And so the back half of 'twenty four, it really looks like the ramp up period with 'twenty five being the operational period for some of these big initiatives.

Speaker 4

Well, if both are operational in 2025 based on there's a research report out there that implies certain margins, But if I use those margins for what we're talking about in terms of DFLaw, Fully operational and 1,000,000 gallons in TBI, my number comes out and I'd like a comment. We're talking about Pharmafix earning roughly $5 a share just from this project. Yes.

Speaker 2

Howard, there's a number of Variable cost variables are not yet defined relative to defining EPS for these things for these initiatives. But in general, that would be in the range that I would assume as well Given the anticipated revenue and the cost and the margins as we would anticipate them, a lot of things can change in regards to rates And other components, but that's generally in the range. I would agree that that's certainly in the range of EPS Our targets.

Speaker 4

Mark, Ben, Lou, thank you all. Congratulations. Talk another time.

Speaker 2

All right. Thanks, Howard.

Speaker 5

Thanks.

Operator

Your next question is coming from Brian Russo at Sidoti.

Speaker 6

Hi, good morning.

Speaker 2

Good morning, Brian.

Speaker 6

Hey, just want to clarify, is the TBI Ramp up, whether it's full production or Phase 3 to 300,000, is that at all contingent on D FLAW being Fully operational or are they 2 completely separate tracks for the DOE?

Speaker 2

Well, that's a really good question, Brian, because It gets back to the DOE roadmap and that's about the only reason or the only way they're really tied to each other. There are 2 different programs, Two different objectives. The waste can come from the same source of the same tank or it can come from different tanks. In other words, DF Law is going to is hardwired by plumbing to some specific tanks. TBI could get waste from those tanks or other tanks.

Speaker 2

So but the road map is important. The road map is DOE's strategy of how it's all going to fit together, Our funding is going to cover everything, how they're going to close tanks on an optimal basis, between the use of VF Law and the use of So they are tied together and not so much physically necessarily as it is strategically And DOE looks at it as a program, where the TBI program, the grounding program Will be a supplement to DF Law. As I've said on other calls, DOE has said repeatedly, Their goal is to get DFLO operating and then supplement that with TBI, which means core grouting, which means One could say they want to get that facility operating first. Having said that, if there's delays additional delays, if there's other Continued pressure on getting moving with grouting that would accelerate the TBI program with the grouting program. So They are tied in some instances, but not necessarily physically.

Speaker 6

Okay, got it. And then Assuming that the DFLAW facility is on schedule for a start of operation in the second half of 2024, how long do you think it would take to actually ramp up to full production or capacity?

Speaker 2

That's really hard for me to say. There's 2 melters at the DFLAW facility and I know we'll get the first one rolling, as I mentioned, late 2024. The other one we would anticipate to be coming up right behind that one. I don't know how far behind it is, But one would anticipate a facility of that complexity that it would take 6 to 12 months to Fully operational to get to the full 1,000,000 gallons a year. But I'm speculating, I don't know the schedule.

Speaker 2

I don't think it's been published. So I'm not sure exactly when the second melter will come online, but the first one is, as I mentioned, is scheduled for Late 2024, and one could assume that sometime in 2025, it will be fully operational.

Speaker 6

Okay, great. And then can you talk about some of the larger opportunities that you've discussed in the past, if it's the OSMS In Ohio and Kentucky or the JRC, which I think you mentioned earlier in Italy, Then the soil sorting with the EPA, I assume the award you won was not in Navajo, But are there others that are close to being awarded?

Speaker 2

Yes. So sorry about OSMS. OSMS, which we have a significant role in, is due to be announced any minute, and by DOE, that's the Kentucky and Ohio Lexington job is valued at about $3,000,000,000 and so we're waiting to hear on that. And that's due to be implemented, in other words, get through transition, a 4 month transition and to implement By the end of September, so they'd have to make an award in May to meet these goals based on the whole schedule. The other one, JRC is the daily job.

Speaker 2

That's correct. We are waiting to hear about that. We've gotten some indication from them that we should hear Literally any day now. So we're expecting to hopefully get an announcement together as soon as that contract is signed, which will likely require some negotiation before we get there. But That would be starting this summer, and that's in the $40,000,000 range, dollars 40,000,000 to 50.

Speaker 2

We also have another one we haven't mentioned in Croatia that we're bidding on that is in the $20,000,000 range That would also start this summer. We should hear about that in June. And we have the Ben and Arany mines, which is off and running. It's Transition or mobilizing now. As I mentioned, that's only about $1,000,000 job, but once we're expecting once to get rolling that it will continue.

Speaker 2

All indications are that's a correct assumption. I don't have a good revenue projection on that or anything like that. There's not any other task orders that We've seen come out from that IDIQ, but we are expecting some action on that through the summer. We also have several new bids that we're preparing right now for the Navy for some facility for a facility Demolition as well as ORSISIG decontamination as well as submarine to be deconned and then the enterprise Aircraft carrier and the Nimitz is right behind that. So both those are $1,000,000,000 jobs or in that range.

Speaker 2

The Sam Rayburn is a submarine It's near term that should be starting in the summer. We're in procurement space now on that. So a lot of really good jobs like Los Alamos has a number of Very exciting jobs coming out that we're it's coming out through our IDIQ, so in other words, just limited competition, all to be awarded this summer. Really good backlog, Brian, of opportunities that include summer mobilization this summer That would allow us to really bolster Q3 and Q4 numbers into next year if we win our share. So Hopefully, we win our share.

Speaker 2

Hopefully, we win more than our share. And there's a number of other ones too, smaller ones I haven't mentioned and a number of other ones that I don't know about yet that they'll be Coming up as procurement the procurement process starts getting back into full swing after the Impacts from COVID.

Speaker 6

And then just lastly, the $15,000,000 of revenue from the new contracts that you Noted earlier, did you realize any of that revenue in the Q1?

Speaker 2

Very little of it. There's probably a couple of 100 ks, not much. The way our projects typically start out is This particular service project is about a month, 6 weeks of document development, Typically about $100,000 here $100,000 there where you're putting together procedures and plans and you got to get approval from the client on. That's what typically happens. That got underway in March.

Speaker 2

We're starting to see the real revenue pick up now in May and really hit full stride in June, July. So very limited. There was a little bit of waste receipt associated with 1 project in March of maybe $500,000 or $800,000 But again, everything is really kind of starting in Q2.

Speaker 6

Okay. So is that in your $9,000,000 of backlog, which was flat versus Last quarter or is it going to be incremental in theory?

Speaker 3

No, that's within The backlog number I gave you. But it's well, let me explain that. The particular project we're talking about, the shipments kind of come and get treated fairly quickly. So There's very little of what's left of the one project in it. So I would probably say a small part of it.

Speaker 6

Okay, great. Understood. Thank you very much.

Speaker 2

Thank you, Brian.

Operator

Your next question for today is coming from Ross Taylor at ARS Investment Partners.

Speaker 7

Thank you, gentlemen, and congratulations on both a real nice quarter and also on a pretty amazing outlook. I wanted to ask a couple of questions. First, you talked a little bit about Europe and you mentioned Germany in your prepared remarks. Can you talk about the German opportunity? It would seem that given their denuclearization program, it might be something that Could be a fairly lucrative opportunity or a number of them there.

Speaker 2

Yes. Germany has been going really good for us, Ross. We've been receiving waste From a commercial company over there for about 18 months now that makes sources for Medical industry in all kinds of manufacturing industries, we've been receiving a shipment about every 3 or 4 months, and that's going to continue. We signed a long term contract with them for that to continue. The thing with Germany is They're building a national storage facility and to support All the countries waste.

Speaker 2

It's not a repository. It's not a landfill or anything like that. It's a storage facility. That's still under construction, But to get waste in there, it has to meet certain characteristics and has to be treated in a large number of cases. That's been great for us.

Speaker 2

Folks are shipping us as ways to treat us, so they can put it in that facility once it gets opened, which is in next year or 2. But in addition to that, what you're Describing is the decommissioning of the reactors. There is significant opportunity to support that and that there's a couple of brokers Our companies have been hired by the power utilities, the commercial utilities that manages reactors We're working with to support large scale treatment initiatives. And those are just unfolding. We're just starting to work with the regulators To get the paperwork in place to provide treatment services, once we get if we do get our Facility up and operating in the U.

Speaker 2

K. That I've mentioned before in press releases, that would support the German markets in a big way. But even before that, we anticipate being able to start treating in the U. S. In about 10 to 12 months If these other arrangements can keep moving forward.

Speaker 2

So big, big opportunities in Germany and Very limited capacity, very limited competition and very few alternatives for those folks as they start their decommissioning process.

Speaker 7

You actually just answered my next question, which is what the European competitive environment looked like. Can you Also, you mentioned the Navy. Can you talk about and the fact that they're moving ahead with early steps on the Nimitz. Can you talk about How you see this playing out there, you've talked in the past about there being a very limited number of firms that can do what you do. You have submarines, you have multiple carriers, I would believe.

Speaker 7

Are these going to be multiple year projects and programs For each ship? What's that look like? And when do you think we need to see more concrete steps out of the Navy?

Speaker 2

Yes. The enterprise, which is obviously a famous aircraft carrier has 8 reactors on it. It's kind of the model and we're assuming it's kind of the model. What that's defined as is through their environmental impact statement. They see a 5 year program

Speaker 8

to

Speaker 2

decommission that carrier. And what they're basically asking you to do is to decontaminate it, remove the waste and radiological contamination off the ship And then scrap it. And all that is to be done in a 5 year period. It's a fixed price job. It's very high risk.

Speaker 2

And they're asking pretty much the bidders to privatize. In other words, you have to Take the ship off their site, which is currently in the Norfolk Naval Shipyard in one of those coveted slips there And take it to your facility and do all that work. So there's very few Places that could do that, there's only a few ship breakers in the country. There's only a few firms that would take this kind of risk And there's only a few firms that have these capabilities. So, the way that things are going in the enterprise and I'm speculating now Ross that There will probably be 3 bidders, 3 big teams, and we're working with several of those right now To define or develop teaming arrangements with them on the enterprise, that RFP is due out here this summer In draft, it's supposed to be final in Q4 for award, the summer of 2024.

Speaker 2

So And to really get rolling to 25. So the Nimitz are right behind it, the same rigor as I mentioned is this summer, which is much, much smaller. And There's about a dozen other nuclear ships in waiting. These old ships are taking up, as I mentioned, very expensive slips and maintenance and security Requirements are not providing any value to the Navy. So they're really starting to make a push to get them out of their hair and get That expense out of the way.

Speaker 2

So it's an exciting program for the business we're in.

Speaker 7

Okay. And you mentioned that you're working with several Teams and you said there are basically 3 players, so I assume several means more than 1 and less than 4. Are you is there someone you're not working with in this process?

Speaker 2

No, we've met with or casually talked to all of the I think all the companies that are dancing in this. Each one of those Each one of those bids, I mentioned 3 bids, will probably include 3 or 4 companies. So It's pretty close to the same folks that are doing decommissioning and the type of work we're talking about now and that we're in. So it's the same group of folks that are getting their feet wet on this. I guess I mentioned because we're doing the USS McKee, Which is really like the it's one of 3 shifts that have been done recently in the last 5 years.

Speaker 2

It's a really good Qualification, our client is very happy. We're right on schedule. It's quite a complicated project It puts us in a good position to really help the team out. We are not priming, we'll be a primary sub To the big boys or a big boy.

Speaker 7

That's a great place for you to be on these programs, on these efforts. Real quick, DFLAW and the like, would you expect a new contract for that? Or do you see that operating under contracts you currently I have and just basically being fit into those contracts.

Speaker 2

Yes, Ross. We do have existing contracts, 2 that could be used, 1 with The DOE out of Cincinnati, which is a national contract, an IDIQ contract, which covers most of this kind of waste, that can be used or We have one with the incumbent for the ITDC contract, the one that just got awarded that we're not unfortunately with. And the one we're the incumbent on we're worth the incumbent on would likely be novated over. It has been in the past. We'd anticipate it to.

Speaker 2

And we just rolled that right over to them and be able to support that. So I would anticipate that would be the case that our contract would be novated.

Speaker 7

Okay. And so in essence, it's not the situation where we'll be looking for a press release that you've won a major contract, but what we will see is Change in revenues and profitability and things of that nature, cash flow, all that comes with that?

Speaker 2

That's correct. I'm glad to mention that because that's exactly right. We'll likely receive a task order RFP that will be Just handed over to us and under that contract, we put a proposal together for a certain amount of units Depending on the characteristics of the waste you're talking about, and they'd make the award and would have very minimal visibility, But it would pretty much be as you said, we'd see the increase.

Speaker 7

Okay. And then I just have two last questions. Both should be reasonably quick. How close are you to generating meaningfully positive EBITDA? You kicked up a real nice quarter here.

Speaker 7

It sounds like you're going to start to kick up Some meaningfully more powerful quarters as the year progresses, more profitable quarters. How far away can we see Positive or meaningful EBITDA next quarter, the quarter we're currently in Q2?

Speaker 2

Yes. We're about obviously halfway through Q2 right now. It looks like where we're sitting at this point in time, we're expecting Q2 to be profitable with a positive income. And as I said, take advantage of the trajectory we've been on from Q1. So yes, this quarter we're expecting To use your phrase, meaningful profitability.

Speaker 7

Congratulations on that. That's a real big positive step. And my last question is, given the uniqueness of this company, given the role you play in these opportunities, I mean, quite honestly, right now, I would think that your company to a strategic player Would be far more than the $9 and change that it's trading at in the marketplace. Have you been approached By strategics, about the idea you've the company has stated it's interested in being bought, But have you been approached by them at this stage inquiring as to whether this is a time and what it might take to get you to sell the company now?

Speaker 2

Yes, Ross. We get that question frequently. We pretty much have to say we can't comment on folks approaching us As far as acquisition goes, but the standard answer is we're always for sale. I do think that folks have watched us For quite some time through the COVID period to see if we'll get profitable again and to get over it. And I think now that we're Demonstrating that there'll be more interest, but I can't comment on anyone talking to us now, I'm afraid.

Speaker 7

What I will say is the fact that there is an answer you could give if it's no. So the fact that you're not saying no will tell me that that's yes. Well, thank you very much. You guys are doing a real knockout job. I think this is a story that Honestly, it kind of feels too good to be true, but you've worked hard at it.

Speaker 7

So congratulations.

Speaker 2

Thank you, Ross.

Speaker 3

Thank you, Ross.

Operator

Your next question for today is coming from Anthony Harpel, a Private Investor.

Speaker 8

Hey, guys. Good morning. Mark, Ben, hope you both are well and congratulations on the quarter.

Speaker 2

Thanks, Anthony.

Speaker 7

So,

Speaker 8

Mark, can you please give us an update on the status The treatment facility in the U. K. You are partnering with Westinghouse on?

Speaker 2

Yes, Anthony, I know it's kind of complicated. What it comes down to is we put that agreement together with Westinghouse And we really spent a lot of time on it. And what would the way it's written is it's Primarily contingent on award of the JRC contract. So that was important to us. So we had a base Contract based revenue, base margin that would be generated to cover our costs, for that facility.

Speaker 2

And so the arrangement we have right now is we have a term sheet with Westinghouse. We have initial designs developed. We're working with them today on designs regularly on some modifications of different types of technologies we'll be deploying in the facility. And we're waiting here on the JRC bid. So if we win the JRC bid, we'll sit down with Westinghouse again Since a couple of years has gone by, since we did agreement, make sure it's all still feasible and the numbers all work well, which we expect them to And then make a decision to move forward with capital investment and the clock starts.

Speaker 2

And the clock is basically Westinghouse is saying that we should be able to get through the construction and the permitting phase in 18 months To 24 months, so then we'll be should be fully operational over there in the U. K. And again, this is at Springfield site is just north of Manchester in the UK.

Speaker 8

So you just answered one of my questions. So permitting and construction would take 18 to 24 months. That wouldn't begin until you receive confirmation of the JRC contract award. So what is the timing of the JRC contract award announcement?

Speaker 2

Any minute. Any minute. So yes, there's been informal Discussions with them, they are planning to make an award at any time. They've told us that repeatedly. There's some questions That they'll send to the winner and hopefully that's us.

Speaker 2

And The winner will have some time to get to these questions and then they'll make an announcement. That's my understanding of the process.

Speaker 8

And what might be the size of that contract?

Speaker 2

It's in the $40,000,000 range for the initial Actually, we're close to 45. The initial scope of work, the RFP Is for or the project is for 7 years within the contract. They've requested in the RFP that, that be extended to 10 years To provide capacity for other waste backlog and inventory they've got on-site, so It would likely grow from that and really not start generating revenue For us, for about a year, it will be about $1,000,000 a year for the 1st year or so, dollars 1,500,000 And then, Way starts to ship in about 18 months.

Speaker 8

So the 40 to 45, Does that I mean, if you win that award, so would that 40 to 45 flow You and Westinghouse entirely or would the amount of revenues that would flow to you in Westinghouse be Some portion of that $40,000,000 to $45,000,000 over time.

Speaker 2

Andy, this is still in procurement space, so I'm getting a little uncomfortable Talking too much about the bid itself. So I probably should withhold answering that question until an announcement is made And then I can explain it to you if we're selected for that contract. But anytime you're in a procurement spot, I certainly don't want to Assume that we don't have competitors listening and that type of thing.

Speaker 8

Okay. Can you comment on what would likely be the

Speaker 2

There's a lot of variables in regards to that question, Anthony, relative to the size of the final design, Backlog, all those types of things. But I would anticipate our portion of revenue, again, it would be a partnership with Westinghouse, We'll be between $10,000,000 $20,000,000 at full capacity annually.

Speaker 8

And what about just in terms of the amount of waste that this facility could treat?

Speaker 2

Yes, I couldn't answer that at this point because it all depends on the types of streams that we're receiving, whether it's a combustible waste stream or a sludge Or some other process waste, it will be a complete variety of different types of waste. What it basically is going to be and this is in our press release, it's going to be the same technology that we have at our Richmond facility, We'll be deploying at this facility. So it will be 2 incinerators and but they'll be Obviously, brand new, the latest technologies, hoping to upgrade from what we've got now and we'll make we've already made some engineering modifications to those to be super efficient and a lot less expensive to operate. So we're excited About what this facility is going to look like.

Speaker 8

And it sounds like designs are Still a work in process that you both, if you do win this award, haven't settled on What the final design might look like? Do you have a sense at this point of what it Would likely cost to build this facility if you get the business that you're expecting?

Speaker 2

Yes. I really can't get into that either at this point, Hi, Anthony.

Speaker 4

It's

Speaker 2

just too many variables at this point to define Because a lot of it depends on the Westinghouse component of it. We're providing a technology for treatment. They're providing the facility and the permit And that's what's changing a lot, whether we use an old facility or put a new facility in, whether they add other Capacity or capabilities to that facility, those questions haven't been all worked out yet.

Speaker 8

Okay. All right. Well, then I'll stop there. And then just one other question related to One of the data points that you did provide in this call, which was your backlog, I believe the number was 9,400,000 How much of that is treatment versus services?

Speaker 3

Hi, Anthony. I'll clarify. The 9.4 is all treatment. It's our waste backlog. Our service backlog, well, at the quarter it sat at $25,300,000 But that's because we had about $5,000,000 of these new awards we talked about that were unsigned.

Speaker 3

Those are now signed. So To this day, it's approximately 30 in services.

Speaker 8

Okay. All right. Thank you, gentlemen. Great job. Keep up the good work.

Speaker 2

Thank you, Isaac.

Operator

Your next question is coming from Aaron Warwick at Breakout Investors.

Speaker 5

Hey, guys. Thanks for taking the call. Hey, Aaron. I think pretty much everything has been covered. I just had Two quick things I wanted to confirm with you.

Speaker 5

First of all, as it relates to the DFLaw facility, It's my understanding, and I want to see if this is correct, that the DOE can't really continue operating that facility Without you guys taking care of the secondary waste because they have no ability to store it or take care of it themselves On-site, is that accurate?

Speaker 2

That's a pretty Definitive statement. Right now, I would say that there's no other Treatment capacity available for the secondary waste coming off of DF law, Which is why the rod was written the way it was, the amendment to the rod. So, there is very, very limited Capacity to treat that waste that would come off. I don't know what else they could possibly do with it or they would have defined it In that ROTH amendment. So I think it's a true statement.

Speaker 5

Yes, very diplomatic way for you to say what I said. As it relates to TBI, the only other thing I wanted to ask about, it's my understanding that there's about 500,000 to 600,000 gallons Waste that could be treated using TBI that would if obviously there has to be the permitting and all of that, but Let's say that, that all came through tomorrow that they would be able to send that to you. In other words, once you complete this test of the 2,000 gallons Successfully that it's just a matter of getting that permitting going and stuff and there is waste ready to be sent to you if they Chose to go that route, is that accurate?

Speaker 2

That is completely accurate. They are they have what they call the TSCR, TSCR and TSCR is Pulling waste out of those tanks now, stripping the caesium and I-nine off That waste, so that's considered low level and strontium, I should say, season strontium. And that waste has been accumulated in a separate tank. DOE's goal is to have 800,000 gallons Pulled out of the big tanks into that temporary tank by the end of this year. And what we've met with DOE on several times is trying to Convince them that, hey, that 800,000 gallons, don't stop pulling that waste out of the tank waiting for DFLAW.

Speaker 2

Why don't you just go ahead and grout that The waste is in that tank and keep the discret moving and not wait for DFLAW. That's a consideration that the DOE has in front of them. I don't know if they'll consider that. I'm not sure. Again, that gets back to their road map, But that waste could be grouted tomorrow and it could be pulled off of that temporary tank.

Speaker 5

Well, yes, and to your point, there was testimony by iQITE in the Senate in April that indicated that they're going to be moving I guess also then, the final thing for me, as it relates to TBI would be, it seems like all of the stakeholders for the first time since this was first proposed, and I think 2016, Seem to be on the same page now, including I know there was talk of the tribes, but also the labor unions seem to be Supportive of this, I think perhaps realizing the DFLAW is going to move forward and that TBI is not a competitor, but rather a supplement. Is that Fair statement to say the wind seemed to have changed in that direction?

Speaker 2

That is a fair statement and it's been a result of a lot of work For the folks that have been supporting TBI, particularly us and a few other companies that support us, and it But that is true. And I think it's come to fruition that folks have realized that the value that grouting it provides For closing some thanks and how much sense it makes. It's been a long time getting that point across And we do want to emphasize it all as a supplement to the DFLA, we certainly respect the DOE's investment in that capability And the reason they're doing it, and hopefully, if you look at the numbers, Aaron, hopefully DFLAW gets going Full speed ahead and TBI does in parallel and then, it certainly is a big opportunity for us.

Speaker 5

Hey, thank you guys. Appreciate it. Good luck.

Speaker 2

Thanks, Aaron.

Operator

Your next question is coming from Avi Fisher at Longcast Advisors.

Speaker 9

Hi, Mark. Thanks for taking all these questions. Just one. I apologize if it's announced, but I was curious about just overall availability of labor And what you're seeing in the sort of industrial labor markets on your end? Thank you.

Speaker 2

Well, Avi, that's a good question. Labor has been a risk for us. I mentioned, I think it was the Q4 call that we really I think we described as a headwind for us. We had a pretty big exodus of labor in December because the DOE site at Hanford They had a big hiring spree. They had a big early retirement initiative and We lost a lot of people and that impacted our Q4 numbers.

Speaker 2

We were able to hire Quickly, through the month of December, end of January, it takes about a month for someone off the street to become trained At the technician level, and so we had an impact to January, February productivity. March was fantastic. People are rolling. We do have a few job openings now, but the surge Folks leaving has definitely subsided and so just a one here, 2 there kind of an impact. So To answer your question, it looks like the labor headwinds are behind us, and we've been able to project Q2 with very limited labor impact, if any, and that's one reason why we're being able to get healthy, is Getting that problem behind us, and we don't see it happening anymore.

Speaker 2

It could at Hanford particularly, But right now, it looks like we've got it behind us and the impacts are limited.

Speaker 9

Thank you.

Speaker 2

Thank you, Ali.

Operator

Your next question for today is coming from Chuck Dickerson, a Private Investor.

Speaker 9

Good morning. Just one question on supply for doing the grouting of raw materials. If you could do 30,000 a month scaling up to 1,000,000 gallons a year and hopefully maybe you Something even before the DFO, but either way, you obviously have a timeline of your own and a roadmap of your own. Where do you stand on that with regard to assuring the raw material supply for all this grouting you're going to need to do? That's going to be a heck of a lot of material.

Speaker 9

And can you speak to whether you source that supply from multiple sources and can you source it domestically as well?

Speaker 2

Yes. We've had problems in the past, Chuck. Again, I think it was the 4th quarter we had Our supplier had some issues getting us what we needed because we do grouting all the time And now so it's not just for TBI and but TBI certainly as you mentioned It's a significant increase in volume. We do have multiple we do have other sources we can get grout from If there was a shortage, it's not it's basically a recipe of like of cement based on Some very defined specific characteristics in chemistry. And so we don't see that as a problem.

Speaker 2

Plants there's multiple sources that we could get this from And we don't see that as a primary risk at this point in time.

Speaker 9

Okay. Thank you.

Operator

Your next question for today is coming from Stephen Fine at So Fine LLC.

Speaker 10

Good day. Congratulations on a nice quarter. I got a couple of questions. First question, Mark, is it not true in the rod that came out in January That they accented that they wanted everything shipped by truck, shipped short term. And then in addition, Like sections like 1, the treatment of the Acetyl Nitrile would really ensure Your position versus competition?

Speaker 2

Yes. That's an important point, Steve. The nuance with any other type of waste treatment that we do and anybody does in commercially in Hanford is The DFLAW project requires that the waste that comes off a secondary waste It goes back to the Hanford site for disposal in the local landfill that they've got, which is a very large investment, brand new landfill to support these initiatives. So because of that, it would not ever make sense to ship waste off-site Excuse me, out of the region for treatment and ship it back to Hanford for disposals. So it It does provide an additional barrier of entry for other companies in support of the DF Law program To have anything but a local opportunity for waste treatment.

Speaker 10

My second question is, thank you. My second question is, when you get the business Relating to the TBI and then if simultaneously you're getting secondary waste From DeepLoft, have you considered Handling both of these or would that represent extraordinary issues for you or is this something That you know you could do. So in other words, you would be treating directly, but also treating secondary waste.

Speaker 2

Yes. No, we would need to make some capital improvements if we were to get full capacity at both those facilities, both TBI, grouting and Deaf Law, we do expect, as I mentioned before, to ramp up through 2025. So we don't see that ever being a critical path for us. We can handle a significant amount of grouting now and a significant amount of DFLAW waste now With the capacity we've got, so I don't see that happening until or needing that capacity until late 2025 at the earliest. And we would worry about those capital improvements then.

Speaker 2

All in, I think to get full capacity for all the waste streams, Again, it wouldn't be more than about $5,000,000 to $10,000,000 of capital improvements.

Speaker 7

All

Speaker 10

right. When you're talking about some of the European stuff beyond this Plants you're talking in England, like when you're talking about Germany. So where is that going to be done? Is that going to be done in Germany? Is that going to be done here?

Speaker 10

For example, if you did work in Germany, where would that be done?

Speaker 2

The waste we're getting waste from Germany now the waste we're getting now from Germany, it goes to Perfix Northwest. And The primary there is I think about it, there is about 10% that goes to our Oak Ridge facility, DSSI, as well. But primarily, The technology that's needed for those folks over there is the incinerator. And we know we've volume reduced, Stabilize the waste and ship it back to them. So we get 70% or 80% volume reduction and That reduces their inventory their storage inventory footprint and stabilizes as well.

Speaker 2

So We anticipate that to continue using that facility. All

Speaker 10

right. So I did catch When I was looking at the financials that particularly on the treatment, your margins were a little down, but It definitely improved, a significant improvement. Do you guys think as time goes on That you'll be able to pass on the extra cost or Will that just be a function of larger volume?

Speaker 3

Hi, Steve. Yes, we expect improvement. There was a mix of waste component to the lower margin on the treatment side. Our Ewalk facility does a little bit lower margin than our normal waste treatment. So as we see the Waste treatment volumes at our traditional three facilities ramp up, we expect to see the upward trend on the margins.

Speaker 10

Okay. I just want to make one last statement to be brief for a change. I do Applaud what you're doing. I thought when you lost the contract and you came out and made the statement how They're going to need you and you'll be an integral part of that. And that is such a reality.

Speaker 10

It'd be nice if you won, but you're needed out there. And I think the most important thing that At least I take away from this is the diversification that You're seeking and that's happening. I envision a company here that's going to be a sizable company like $150,000,000 $200,000,000 plus company without Hanford. And then if and when Hanford happens, that'll just be icing on Okay. So I think it's just a wonderful story.

Speaker 10

I applaud you all. I applaud the quarter and Just congratulations.

Speaker 2

All right. Appreciate your support, Steve. All right. I'd like to thank everyone for participating on our Q1 conference call. We remain extremely confident In the outlook for the business, we appreciate the continued support of our shareholders and we look forward to providing further updates as developments unfold through Q2.

Speaker 2

Thank you very much.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your

Powered by Quartr
Earnings Conference Call
Perma-Fix Environmental Services Q1 2023
00:00 / 00:00