Perma-Fix Environmental Services Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 9 speakers on the call.

Operator

Greetings. Welcome to the Perma Fix Second 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.

Operator

I will now turn the conference over to your host, David Wallman, Investor Relations at Perma Fix. You may begin.

Speaker 1

Thank you, Paul. Good morning, everyone. Welcome to Perma Fix Environmental Services' 2nd 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.

Speaker 1

The company issued a press release this morning containing Q2 2023 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 2126 7,110,20. 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.

Speaker 1

S. Securities and Exchange Commission As well as this morning's press release. The company makes no commitment to disclose any revision to forward looking statements or any fact, 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.

Speaker 1

A A reconciliation of the non GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark.

Speaker 2

All right. Thanks, David, and good morning, everyone. I'm pleased to report that we are back on a solid growth trajectory and have returned to profitability following the impact of the COVID-nineteen pandemic. We continue to realize improvements in our performance and are regaining the momentum we had prior to the pandemic. As evidence of our turnaround, we achieved a 28.7% increase in revenue $25,000,000 for the Q2 of 'twenty 3 versus 19.5 for the same period last year.

Speaker 2

Importantly, we've also achieved sequential growth of revenue to 24.5% compared to the Q1 of 2023. Revenue increased both year over year and sequentially with our Treatment Services segment together. The growth in revenue reflects the initiation of several new projects, 1 in the early part of 'twenty three that support the backlog in both segments and provide growth opportunities into 'twenty four. In addition to our revenue growth, gross profit increased by 56.6% and gross margins increased from 14.8 to 18%. Within the Services segment, we were recently awarded 2 new contracts that are expected to start in the Q3 of 'twenty three and we believe further I will further expand our backlog.

Speaker 2

The combined value of these awards is estimated to be over $8,000,000 for the next few years, but are front loaded over the next 18 months with opportunities for expansion along the way. These awards include a task order project From the U. S. Army Corps of Engineers in support of their Facilities Reduction Program as well as an award as a team subcontractor In support of the Los Alamos National Lab for Department of Energy. Both of these awards leverage our core competencies, including characterization, remediation And disposition of hazardous materials and waste management.

Speaker 2

We also commenced work on awards granted earlier this year They have now begun to generate revenue and have helped to offset the Princeton and McKee projects, which will begin to wind down in the Q4. We also continue to develop new proposals and realize significant increases in activity within both segments, including the U. S. Navy, The U. S.

Speaker 2

Army Corps of Engineers as well as several activities at DOE sites and ongoing initiatives with our international and commercial clients. Within our Treatment segment, we witnessed an increase in volume with strong waste receipts During the Q2, which provides us a solid backlog for our plants and improved visibility for the balance of 2023. This was a result of increased waste shipments from DOE to our Eekwalk facility here in Oak Ridge throughout the second quarter along with steady sales We expect to see a steady improvement in waste receipts and an increase in project work From existing contracts, new contracts and bids submitted in both segments that are still waiting for award announcements. 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. Despite a few delays and award announcements, these growth initiatives have remained on track with a $3,000,000,000 DOE Operations and Site Mission Support contract referred to simply as the OSMS is tied to the recent Portsmouth D and D award and is due to be announced any day.

Speaker 2

The ITDC contract Tank contract closure excuse me, the ICDC tank closure contract has seen quite an unusual procurement cycle, Including an award to our competitor with a later determination ruling that the awardee was ineligible for the competition due to a non compliance with the government's Systems for award management requirements commonly referred to as the SAM dot gov system. As a result, Dewey now has 2 primary options, which could include awarding the project to our team or rebidding the contract for a 3rd time through a new procurement. We anticipate learning more about the DOE decision for this initiative in the Q3 of this year. The JRC award in ISPA Italy is due to be announced in the Q3 of 'twenty three soon after the European Folks complete their August holidays and get back to work, which we're anticipating to hear something in the September timeframe. Receipt of this award will provide a foundation for long term growth within the European markets and open several opportunities to support existing IDIQ contracts held by Perma Fix in the U.

Speaker 2

K. And strengthen our relationships for waste treatment in both Germany and Croatia. These opportunities are expected to provide sustained receipts beginning in the next several quarters, providing combined annual revenues estimated in the $10,000,000 to $20,000,000 range. The Test Bed Initiative or TBI program, Also known as the low level waste off-site disposition project in support of the DOE Hanford tank waste Disposition mission continues to progress. The submittal of the RD and D permit from DOE to the State of Washington Regulators was completed in the Q2.

Speaker 2

And following their upcoming public comment period and approval by the state will allow DOE to begin to extract the 2,000 gallons of waste From the tanks for the Phase 2 grounding demonstration anticipated to be later this year. The TBI program is recognized by DOE as Potential supplement to the vitrification mission to provide a solution for the 59,000,000 gallons of tank waste stored on the Hanford site. Perma Fix maintains these grouting capabilities today in our Perma Fix Northwest facility in Richland, Which is permitted and outfitted to safely and compliantly grow up to 30,000 gallons a month with the ability to expand That capacity is well over 1,000,000 gallons annually, while dramatically reducing cost, risk and schedule As compared to the vitrification program alone. It's important to note that our Perma Fix Northwest facility offers the local Our regional option for grouting is the only one that the only option for regional or local grouting for tank waste versus other options to ship untreated waste out of state for grouting and disposal, which is defined as the higher risk alternative in the Recently approved environmental assessment and the recent WEAR documents. In the meantime, we've progressed Over the past two quarters, in our strategy to maximize the value of our waste treatment offering in support of the Department of Energy's Hanford closure mission.

Speaker 2

Towards that end, we recently entered into an alliance with the local 598 Pipefitters Union in the Tri Cities to provide a labor Support

Speaker 3

for our

Speaker 2

grouting offering for the tank program. We believe this partnership increases the value of our offering to the DOE through our labor availability And labor stability are for the grouting program when it reaches an operational level, while providing a treatment option that can accelerate The reduction of the environmental liability in the region. We consider this a big opportunity with the Local 598 as the waste receipts Increase on all of our Hanford Waste Programs, including the DFLL program, which appears to be on track for the late 2024 startup of the vitrification plant. It's worth noting that the DFLA facility achieved a major milestone last week when it successfully heated to 2,100 degrees Fahrenheit In its testing phase, the waste that will be produced from this DFO facility is estimated by DOE to be over 8,000 cubic meters annually And will begin to be received at Perma Fix facilities upon hot startup of the plant, as I said, currently projected for late 2024. As I've mentioned in the past, the volume of this waste would more than double the production of all our plants combined on an annual basis.

Speaker 2

Overall, we continue to see slower than usual procurement cycles and difficulties with government clients in getting projects awarded despite funding levels that remain unspent. However, the return of workforces across the DOE and other government agencies, we see Optimism that these procurements will continue to increase in activity that we saw at levels prior to COVID-nineteen. Turning back to our financials for a moment. EBITDA in the Q2 of 'twenty three improved to an income of 1.5 $1,000,000 compared to a loss of $400,000 for the same period last year. We also returned to profitability after climbing back from the pandemic Over the past 3 years, we achieved a net income of $474,000 in the 2nd quarter of $23,000,000 compared to a net loss of $1,400,000 in the Q2 of last year.

Speaker 2

At the same time, we continue to invest in our capabilities and facilities. We have built a solid foundation for growth in a highly scalable infrastructure. As we continue to increase revenues, we expect to benefit from this predictable cash flows from our Services segment and the high incremental margins within our Treatment segment. So to wrap up, we remain optimistic that 2023 will realize continued growth in both segments as we expand our market base and develop strategic teams to optimize Win probabilities for upcoming procurements. While we continue to realize impacts due to labor shortages, we're heavily focused on increasing productivity and Reducing costs to maximize our margins.

Speaker 2

Our growth strategy includes also expansion of our waste services in Europe And with commercial power generators as well, we believe that we will see a growth in receipts in both these groups in the next few quarters. Overall, we remain confident in our ability to maintain the growth and stability we experienced prior to the pandemic, and we're encouraged by the market outlook given our solid Sales pipelines with a number of important contracts expected to be awarded over the next few quarters. On that note, I'll now turn the call over to Ben, who will discuss the financial results in more detail. Ben?

Speaker 3

Thank you, Mark. I'll start with revenue. Our revenue our total revenue from continuing operations for the Q2 was 25,000,000 Compared to last year's Q2 of $19,500,000 an increase of $5,500,000 or 28.7 percent. The increase in revenue was attributable to both our operating segments as our treatment revenue was up $4,400,000 and the service segment was up 1.1 The increase in the Treatment segment was primarily volume related as all our facilities processed more waste and the increase in the Service segment It was driven by both increased project work by increased project work on our 2 large contracts. Year to date through June 30, our 23 revenue increased over prior year by $9,800,000 or 27.6 percent.

Speaker 3

And again, revenues up compared to prior year at both segments. As with the quarter, high volumes at the waste treatment Contributed to the increase in revenue, in the Service segment, the 2 large projects have been in full production for the entire 6 months F 2023, well, they did not begin full production until close to the Q2 in 2022. Looking at gross profit for the quarter, we had $4,500,000 compared to $2,900,000 in 2022. As with Revenue, both operating segments contributed to the improved total gross profit of 1,600,000 In the Treatment segment, higher revenue drove the improvement, although there was an offset From the mix of waste for lower margin waste streams as well as higher fixed costs at the plants. Service segment gross profit improved as a result of Higher revenue as well as better margins realized on our project work.

Speaker 3

Again, for 6 months ended June 30, our gross profit was $7,500,000 compared to $4,500,000 in the prior year. This $3,000,000 improvement from both segments as the Treatment segment revenue increased increase was partially offset by the higher the impact of the higher fixed costs And the lower margin waste mix. In the Service segment, similar to the quarter, increased revenue And improved margin realized on the projects contributed to the higher gross profit. Turning to SG and A. Our costs for the quarter were $3,600,000 representing 14.2 percent of revenue compared to $3,700,000 in or 18.9 percent of revenue.

Speaker 3

Our SG and A costs were lower Due to lower audit fees and payroll related expenses and they were offset by higher expenses related to Stock options and higher outside service costs related to financing efforts. For the 6 months ended June 30, our G and A sits at $7,000,000 or 15.6 percent of revenue compared to $7,100,000 or 20.1 percent of revenue last year. Again, lower audit fees were the main contributors This small reduction, and they were slightly offset by higher outside fees related to financing. Our net income for the quarter was $474,000 compared to last year's net loss of 1,400,000 For 6 months ended June 30, net income sits at $63,000 compared to a net loss last year of $2,800,000 The basic earnings per share for the quarter is $0.04 compared to loss per share of $0.11 in prior year And the year to date basic income per share is at 0 compared to losses last year of $0.21 per share. EBITDA from continuing operations as we defined in this morning's press release is at $1,500,000 compared to a loss of $403,000,000 Last year and EBITDA year to date stands at $1,700,000 compared to a loss of $1,800,000 in 2022.

Speaker 3

Turning to a few balance sheet items. Our cash on the balance sheet was $4,800,000 compared to $1,900,000 at year end, Which reflects our positive cash from improved operations. Our current receivables and liabilities were Up approximately $3,600,000 $3,200,000 respectively, as a result of increased operations and the timing of collections of payments. Our waste backlog for the end of June was $8,900,000 which is close to the $9,200,000 at year end and up from $7,200,000 a year ago in June of 2022. Our total debt at the quarter end was 854,000 Which excludes debt issuance costs, which is primarily due to our lender P&C Bank.

Speaker 3

And finally, I'll summarize some cash flow activity for the year. Cash flow from continuing operations provided Was $4,800,000 Cash used by discontinued operations was $336,000 Cash used in investing, Continuing operations was $1,000,000 and it's primarily capital spending. Cash used in financing was $290,000 Which represents our monthly payments on our term and capital loans of $273,000 payments to related finance, Leases and liabilities of $118,000 and proceeds from option exercises of 101,000 And then finally, I'm pleased to report that on Monday, July 31st, this week, we amended our loan agreement, which among other things extended the maturity date of our credit facility for an additional 3 years or to May 15, 2027. As part of this amendment, our lender provided a new term loan of $2,500,000 which will further support the company's liquidity position and will be used for general working capital needs, facility capital and maintenance. Perma Fix is now banked with P&C for over 25 years and this extension underscores the strength of this relationship, which has endured through many highs and lows.

Speaker 2

With that,

Speaker 3

I will now turn the call over to the operator for questions.

Operator

Thank you. At this time, we'll be conducting a A question and answer session. And one moment while we poll for questions. The first question today is coming from Howard Bruce from Wellington Shields. Howard, your line is live.

Speaker 4

Thank you. First of all, Mark, Ben, Lou, I hope you and your families are well And things are good personally.

Speaker 2

Thank you, Howard.

Speaker 4

You're very welcome. First of all, congratulations So all three of you on what is a very good quarter. So as a shareholder, I'm rather pleased about that. I've got a few questions and I want to focus on 1st last quarter on the conference call. You mentioned Near term opportunities in Slovenia, Croatia, Mexico, Canada, U.

Speaker 4

K. And Germany. You mentioned a couple of them On the call just before, have we lost any of those opportunities? That's the first question. And secondly, if not, When would you expect to see some of those awards?

Speaker 4

And could you talk about the total size Of what we're looking at there?

Speaker 2

Sure, Howard. No, we have not lost any awards. They have they've moved With the U. S. Government, they move quite slowly.

Speaker 2

Let's start with Croatia. We have 2 procurements that we're Supporting right now, one for treatment of resins, which we're likely going to move into an R and D phase, with them on that, Which will be quite small initially, but with an opportunity, if technology proves successful, to Expand. The other one in Croatia is around a $20,000,000 project that's due to be awarded In the September time frame, the second round of the RFP just came out here and is due, I think, next week. So that is still in play, and we have a very innovative offer for that project, and we remain optimistic about it. So that would also impact Q4 if we were successful.

Speaker 2

The GRC contract I mentioned obviously has not been awarded yet And but or we did have discussions with the client, and they said as soon as they get back from vacation, There should be an announcement. So that's again early September. Several other ones are still brewing, particularly Germany. We're working with a broker agency to support the decommissioning of about 12 reactors over there right now. That's moving forward rapidly.

Speaker 2

We're hoping to be able to start supporting that waste treatment process in Q4 or Q1 timeframe, we do continue to get waste from the German commercial Firms that we've been working with for quite some time now on a quarterly basis. And then in the U. K, we're also working on several initiatives there. Again, We still have our agreement with Westinghouse that if we're successful in JRC, we will move forward with that new plant. We also not sure if we ever talked about it, but we do have a couple of other IDIQs that we've won with the U.

Speaker 2

K. Government For waste treatment and we continue to get task orders out from that to treat the waste over here with a new plant In Springfield with Westinghouse, we'll be able to treat over there. I mean much, much more competitive and That IDIQ continues to be active. So lots going on over there. There are a couple of other initiatives that are going on as well in earlier stages, But looking for real momentum in the next two quarters over there and big impacts for next year particularly.

Speaker 2

To answer your last part of your question, we anticipate when all these things are clicking with a couple of these awards That we should be able to assume a $10,000,000 to $20,000,000 a year revenue stream internationally, which will ramp up in the next year or 2.

Speaker 4

Thank you. Let me continue on. There's been a lot of discussion about the dismantling The aircraft carrier, I hope I have the right one, Enterprise, which is docked in Washington State. And in the process of dismantling The nuclear reactors, they plan on encapsulating them and transferring them to, of course, Hanford, that magical name. Can you discuss the opportunity there?

Speaker 2

Sure, Howard. That's a big one for us. The Enterprise is the next Our ship is slated for decommissioning. They just finished the final EIS. I believe it's been signed last quarter and the final EIS completion is the trigger to move into Procurement, we're expecting the draft RFP to be out in the Q4, early Q4 like October time frame.

Speaker 2

The aircraft carrier is actually sitting at the Norfolk Naval Shipyard in Virginia. I believe it's at the Huntington Ingalls facility there. And we are just completing our teaming dances for that that we go through. And signatures for these agreements are waiting on the draft RFP. It's estimated, Howard, to be In the $800,000,000 to $100,000,000 to $100,000,000 to $1,000,000,000 total revenue, I'm not sure what the final RFP is going to look like and how much risk we have to take that will dictate Really how close to $1,000,000,000 that project gets.

Speaker 2

The other exciting thing that we're anticipating is that The RFP will include a 20% small business set aside. The last several that have come out have included that Small business set aside. We're expecting this one too as well. And that kind of gives you a sense of where we'll likely be In total revenue, for a project like that.

Speaker 4

That's quite a large opportunity. Over the last several quarters, we've talked about uranium and the EPA settlement with the Navajo Nation. Where do we stand on that? Because I believe there was a contract win a year and a half ago of 220,000,000 To a consortium that started with a Navajo Nation company and you were involved Perma Fix was involved. Where do we stand on that please?

Speaker 2

Yes. I probably should have talked about that in the notes, Howard, because that's a really important project for us. We did win a contract with The Ben and Rainy Mine program to the EPA with Prime, as you said, is a local Navajo firm and a few other teaming partners as well, we mobilized into the Navajo Nation, In De Cove, Arizona, for the actual first, Urbanae Rainy Mine remediation project through that very large program, which Funded well over $1,000,000,000 right now and we are in the process of finishing cleaning up that site. It's a quick turn, I want to say a couple of months total. So we've been out there for a few weeks.

Speaker 2

I was out there last week With our Executive Vice President and our technical folks to tour, met with EPA and they're very excited about how our Tool sorting technology is working. It's cleaning up to very, very low levels of radioactivity and meeting expectations. And we're anticipating, although it's not final, that project will continue to expand And the system we have in place out there in the middle of nowhere in Arizona will continue to operate beyond that project and move right into the next one. And we're working with EPA to make that happen right now. So that project is going very well.

Speaker 2

It generates about $1,000,000 a month Our portion and the project itself is very well operated and with our teaming partners And very efficient. So EPA was quite supportive and pleased with the project to date and more to come on that as it continues to expand.

Speaker 4

Let me address the ITD Seed contract. There's currently an appeal that's Existing. When does that period end? That's the first question. And the second part of it is, assuming that I assume that BWXT has lost the contract.

Speaker 4

Is it a fair comment? There's a high likelihood That Atkins gets that award after the appeal period is over with. What are your thoughts?

Speaker 2

Yes. The appeal period I should say, We're in an appeal period right now. I'm not sure of the exact date, Howard. It was a 60 day period, and my recollection was that would take us to Like end of next week kind of thing. So in that range, in the DOE, we'll have we'll move forward with their decision process.

Speaker 2

And as the judge said, in the ruling, there's only there's basically 2 options to either award To make an award to the other team, and again there's only 2 teams, or move forward with a new procurement, I can't speculate on the Probability of any direction they might go, it's really difficult to understand. It's been very, very quiet, while they're waiting for this appeal period to be over. But this is the 3rd time it would be the 3rd time if they go through a procurement process. There is some Urgency associated with what's happening at the site over the next couple of years With DFLAW coming online and the tank program really changing, so we'd like to be optimistic about it, but we really have no intel And really no understanding of what DOE is going to do at this point. Hopefully, we'll learn something in the September timeframe.

Speaker 4

Let me get to the last, probably the most important question. So the smelters work for the vitrification plant Up to 2,100 degrees and that then leads to the likelihood of the plan starting in end of Q3 2024, is that a correct comment based on what you're hearing from the Hanford people?

Speaker 2

Generally, yes, Howard. The melter has the first melter has 2 melters, I understand, and they're quite complex pieces of equipment. The first one did Operator as planned from what we've read and that they're moving forward with the other Testing of the other systems associated with that, which obviously is a very large complicated facility, but They're making good progress. DOE continues to report in their press releases as they click over milestones that they're on track for The second half of twenty twenty four, basically a year away and the things are going well. So there's Increasing optimism about their schedule, about the facility coming online, getting that melter operational was a big deal and a big accomplishment By Bechtel and the other contractors along with DOE.

Speaker 2

So obviously, we're really big fans of that Vit Plant And hope to be able to provide support to our new arrangement or agreement with them that's reflected in the ROD. And right now, we would expect to be hot testing with real waste in at the end of 'twenty four.

Speaker 4

Based on a full operational, can you confirm again that on that basis That's for 2025, we still could be looking at just in this one area, roughly $3 in earnings?

Speaker 2

Yes. I really can't address the earnings at this point. There's a lot of variables in this Calculation, it seems like a reasonable estimate, but it depends on the mix Of waste that we receive, the quantities of each type, and that type of thing, I would expect that their estimate is 8,300 cubic meters a year, And that would assume full capacity both melters running full blast for a 12 month period, which would likely take A year or 2 to get to that kind of level. But I do expect us to ramp up to a point where We could definitely tune those numbers and get an understanding of how much capital we have to invest in it, which we anticipate to be quite limited at this point, But it seems like a reasonable estimate overall, Howard.

Speaker 4

All right. Thank you. I'll let other people ask questions. I'll come back if I have additional.

Speaker 2

Okay. Thank you, Howard.

Speaker 4

And congratulations, Mark, Ben, Lou. Great quarter.

Speaker 2

Thank you.

Operator

Thank you. The next question is coming from Brian Russo from Sidoti. Brian, your line is live.

Speaker 5

Yes. Hi, good morning. Just to follow-up on the D'Flaw facility outside of the second melter And the temperature testing, are there any other major milestones that we should be monitoring To for the DOE to maintain that second half of twenty twenty four hot star?

Speaker 2

Yes. There's a number, Brian. I don't have those in front of me, but sort of any Facility like this, there's a lot of safety systems, there's readiness reviews, other milestones like that that will occur as they We'll get closer to next summer. So I would expect that other melter to be tested here In the near term, and then they'll start going through their operational readiness, milestones and checklists and those types of things and report on those most likely As they are successful, and I would I can get some I can get those to you. They should be on their website, At least several of them and there's agreements in place with the regulators and the DOE in regards to what these milestones are And we can track that along the way.

Speaker 2

So if they are available at the DOE, I just have to pull them off the website.

Speaker 5

Okay, great. And just remind me on the Washington State Ecology permit for the 2,000 gallons, Is that in the is there a public comment period that we're currently involved in? And how soon after when that permit is granted to the DOE can the 2,000 gallons be shipped?

Speaker 2

Yes. The permit the RDE permit is for that gives DOE the ability for approval to extract the waste from the tanks. They came out with Questions for DOE, I want to say this past Tuesday, so 2 days ago. In these questions, they had some Some technical questions in regards to how the waste is going to be extracted and what's it going to do with the equipment after it is extracted and that kind of stuff. And said that when DOE provides the response to those questions that they'll go out for public comment and move towards approval.

Speaker 2

So that public comment has not happened yet. I would speculate it will be 30 days, and it would likely be Probably a month from now before we see anything, because Steve has got to respond to his questions. He got to address him and everything else. And then DOE would be Once that approval is completed, DOE could start extracting waste in the early Q4. Once it's extracted, it won't take long to treat it.

Speaker 2

And once they finish that demonstration, then DOE is in a position to move towards On operational phase, which we're hoping will be sometime in 'twenty four period. So, again, We're not there's not a date or a specific approach associated with the operational phase. It's really DOE will tell you they have a road map That includes going to operational phases with the grouting program. And that's really what we're focused on is that Obviously, 2,000 gallons is pretty small. It's a demonstration, and we're looking forward to the operational phase Where we really begin to treat large volumes and make real progress on tank closure.

Speaker 2

So, again, we're expecting it sometime in late 24.

Speaker 5

Okay, great. And will the Richland facility need a mod to do the operational phase, which could be The 1,000,000 gallons?

Speaker 2

We're set to go with 30,000 gallons a month with our current permit and current facilities. We would have to do a minor mod and to go from $300,000 a gallon or $300,000 to 1,000,000 And would not expect a problem doing that and again minor capital improvements to get there as well. But that would not be a significant delay in getting that in place to make that jump up if DOE got to those quantities.

Speaker 5

Okay, great. And then on what's the services backlog? You mentioned the treatment backlog, but I think services was Mark to mark, dollars 30,000,000 on your last call. Just wondering where that stands with the $8,000,000 new awards in the press release?

Speaker 3

Yes. Hey, Brian. The some of that 8 is not in there. I don't have a current number. Our quarter end number Was $22,600,000 and that included about 4 of the 8, so probably another probably about $26,000,000 $27,000,000 is the new award.

Speaker 5

Okay, great. And then just on the margins in each segment, obviously, significant improvements year over year. Are you close to what would be considered normalized? The 22.7% of treatment is normalized maybe a couple of 100 basis points Tired of that based on the $100,000,000 of annual run rate revenue And the services, which was 16.6%, is that atornear kind of the normalized Margins?

Speaker 3

Yes. I think the services is treatment is Probably on the lower end for a reason. The new revenue that we're receiving at our new plant is going to be a little bit lower margin than sort of our Core three plants, so that probably brought the number down a little bit. When we get into that Sweet spot of $100,000,000 a year. I would in our regular mix waste, I would have expected a little bit higher, but The work we do at the new facility is a little less like the mixed waste treatment.

Speaker 3

So I think it's a good number and we could see it go up with a little better performance at our other plants.

Speaker 5

Okay. Great. And then lastly, just on the mix of that $100,000,000 it is kind of Are you looking for maybe sixtyforty services treatment?

Speaker 3

Yes. That's kind of the general 60, 40, maybe even 55, 45 because of the new facility, depending on how it does.

Speaker 5

All right, great. Thank you very

Speaker 2

much. Thanks, Brian.

Operator

Thank you. The next question is coming from Ross Taylor from ARS Investment Partners. Ross, your line is live.

Speaker 6

Thank you. Just a couple of quick things. 1, the DFLAW Situation opportunity is in no way really impacted by the unsettled nature of the Other contract?

Speaker 2

Yes, that's a good question, Ross. The DF Law operation is tied to A tri party agreement between DOE, the regulator and EPA, so it is completely different Hours not tied to that procurement. So DOE has an obligation to be up and running. I want to say there's a couple of slips because Hovde, I want to say the milestone is, I'm going to say August of 'twenty five, I believe, where there's potential for fines and penalties after that point. So do you always try not to get anywhere close to that?

Speaker 2

Again, it slipped from December of 2023 because of COVID And it is a very important milestone that DOE reports to Congress on and to the regulators on a regular basis. So it's not tied to our procurement at all.

Speaker 6

Okay. And so that money and that's why you're confident that this is all about Getting the melters up and operating and once they're up and operating, they're going to push this through. They've been working on this for decades. And so that's where we're confident that that income flow. That's why whether it's $3 or around $3 or whatever on a run rate basis.

Speaker 6

That's where that comes from. 2nd, Italy and Europe. I noticed some of the choice of words you used in Italy made me feel that you would be more surprised not to get the contract than if you got the contract. Is my read correct?

Speaker 2

I hate to speculate on anything to do with procurements, Ross, because Crazy things can happen. We've been optimistic for quite some time. The reason we're optimistic, Ross, is the way that works in Europe is they down select. So this procurement has been going on for 10 years, and it started out with 6 or 7 bidders, maybe 9, and it gets down to 2. So your optimism goes up as you go down, and we feel like we're in a good position really good position With our team, and I can't say that we won or that we're more optimistic than we were before, But just that we remain optimistic and that we should hear in early September.

Speaker 6

Okay. Well, we look forward to hearing that. Talking about Europe, it would appear you have a lot of opportunities there. A lot of things should come on. You if you win the Italian job, to want to be a better phrase, you have your relationship you're going to build out a facility in the UK to 3, in the interim, you're going to treat in the U.

Speaker 6

S. Any business that you get from Europe, whether it be Croatia, Germany or elsewhere?

Speaker 2

Exactly, exactly. And that's what we've been doing now as we've been shipping over from Europe to our Northwest facility To the incinerator units we have in Northwest, which are very well suited for this kind of work. And it's a little different With out of country waste treatment because you have to commit to giving all of the residual back To the host country, and our incinerator units, we call BPUs, are designed to do just that. So we can very high quality take the residual and package it and ship it back to them. I think the stabilization value out of that as well as the significant size reduction value of about 90% overall For long term storage over there.

Speaker 2

So it works well and it's obviously higher transportation costs and that's what we'd cut out If we had the same facility in the U. K. As planned.

Speaker 6

So what happens with margins if you're able to move this business From treating it in the U. S. To treating it in the U. K, how big of a boost on margins would that be?

Speaker 2

That's Margin as a percentage will likely be lower, because we're sharing those with Westinghouse and the JV that we put together with Westinghouse. So I would expect this to go down. It's difficult to really with the waste that we know that's in inventory in the U. K. And in Europe When there's dramatic amounts of waste inventory at every nuclear facility over there for the most part.

Speaker 2

And it's just it's difficult to say what the margins would be. It's not going to be as good as we're used to over here, But it should be much less. So I would anticipate 50% to 70% margins on the waste treatment over there.

Speaker 6

Okay. Will you talk about the number of opportunities and the sizing in the uranium mine, the old uranium mines like in New The Navajo projects, how big are those? How many are they? How long now that they're starting, how long do we think they actually will continue to run?

Speaker 2

Yes. Some unofficial numbers, Ross. There's 500 abandoned uranium mines in the country from what EPA has told us. 250 of those are funded for or slated for remediation. At least $1,000,000,000 of funding and close probably closer to $2,000,000,000 identified for this.

Speaker 2

But the contract that we have with our Teaming Partners is a $225,000,000 IDIQ. So there's 2 other bidders there's 2 other contingencies Excuse me, 2 other consortiums of companies that can bid on the task orders And the value of that is $225,000,000 which is just about I want to say 2 years left on it. And That kind of gives you a sense of the near term revenue we're talking about is between those three companies. Their intention is to get rolling in the field. There's enough work to go around for everybody.

Speaker 2

I'm sure they'll split it up and to make sure people stay in the field and keep going, Because these mines are everywhere. It's painful to deal with them. Difficult work, very difficult, very remote, Very hot, obviously, dry and difficult conditions. So once you're out there with your team and people, you don't want to keep moving in and out. You want to keep going.

Speaker 2

So that's our hope there. And we see this whole program accelerate in visibility and funding and procurement wise, get more Task order is out, so we can keep going.

Speaker 6

Okay. And same idea, you guys are currently finishing up a job with the Navy in Virginia, I think actually right next door to the Enterprise, if I recall correctly. And the Navy has The enterprise, but it also has a number of other warships that need to be decommissioned in that. What would we be thinking, not just we got obviously upcoming soon, the enterprise, you're one of the 2 on that. Is that kind of the same setup with all these other opportunities that it maybe has?

Speaker 6

And should we see more than just the enterprise let out this year?

Speaker 2

Yes. There's another building that we're bidding on right now. It's due here next week, I At the Norfolk Naval Shipyard, right next to the ship that we're decommissioning. So there's some other ones other projects are coming out, which reflect A new era with the Navy where they used to just self perform all this work. Now they're outsourcing it commercially And that really opens up the market for companies like ours.

Speaker 2

But to answer your question, the Nimitz It's anticipated to be 1 year behind the enterprise, and the GAO put a report out, I want to say in 2021 That said that there's 48 ships to be decommissioned by the Navy in the next 5 years. I think they kind of lost a couple of years because of COVID. Of those 48 ships, I believe there's about a dozen nuclear ones. So they have a list and I haven't seen the other names below the Enterprise and the Nimitz. The Nimitz is also an aircraft carrier About the same size or as far as difficulty goes and We expect the NIMMETS to come out right after the enterprise gets awarded.

Speaker 2

Okay.

Speaker 6

Well, great. Congratulations. It looks to me like what you're really talking about is there's so much Sure. We're just sitting on a clock or a calendar function. It's really every day that goes by, we're a day closer to the tremendous earnings power you're talking About being unlocked, it's not really a question of this.

Speaker 6

It's just a question of can we be patient enough to get there in the next year or so.

Speaker 2

That's exactly right, Ross. It's been a world waiting game. COVID has thrown a big wrench, as I've mentioned 100 times, into the procurement process and there's a lot of waiting For procurement, everything is funded or at least not everything is funded, but the significant funding out there is a significant unspent funding Out there way more than ever, and we anticipate that to continue and, the missions are all very well defined. They just got to keep moving with the goodness procurement's out.

Speaker 6

Okay. Well, you're doing a great job. The company has It seems like it has really turned the corner and I congratulate you and your team on that.

Speaker 2

Great. Thanks, Ross. Appreciate your support.

Operator

Take care. Thank you. The next question is coming from Aaron Warwick from Breakout Investors. Aaron, your line is live.

Speaker 7

Hey, guys. Appreciate you taking the call and want to piggyback on what Ross said on the congratulations and the future certainly looks bright. I wanted to also follow-up on Something you talked about just to make it clear because there's been a lot of confusion, I think, among the investor community. But I just want to reiterate, it sounds like regardless of what happens with the DOE's decision as it relates to ITDC, They're under an obligation to get the vitrification plant up and running and therefore, at some point, getting that secondary waste To you guys, is that accurate?

Speaker 2

That's a true statement, absolutely. Becco has the job Right now, as a separate contract to get it up through hot testing, and then they turn it over To the ITDC winner or something like that and That's the current approach that could change and they could change tweak it or add more time to Bechtel or something like that. But that Mid-twenty 24 timeframe, there needs to be one would assume that DOE would have a contractor on board To support that turnover once that plant is hot.

Speaker 7

Right. That's what I was thinking too that so it seems likely they'll get this resolved without a 3rd bidding process, but even if they do, they're on that timeline for August 2025 at the absolute latest. Yes. Okay, good. Sticking with Hanford, I attended a public meeting, I I think it was in late May, maybe early June, had all of the entities involved, the government entities involved With the Hanford project there and it's quite surprising because I had always gotten the impression that

Speaker 2

Aaron, I think we lost you.

Speaker 7

It looked like that was going to be part of their solution. Have you guys seen this change as well? And I would assume to see that positively?

Speaker 2

I'm sorry, Aaron. We lost a big chunk of your question there. Could you the last couple of sentences, could you repeat that?

Speaker 7

Yes, sorry about that. Yes, so at this conference, this public meeting, the Department of Ecology Seem to have changed their tune to where they're extremely positive Have you seen that change in position from them and I assume have received that positively?

Speaker 2

Yes. You broke up again, I'm afraid, Aaron, but I think what you're asking is how has the State of Washington evolved in regards to TBI and grounding. Yes, They have come around. They had some dissension in the past years, but we've had some Really good meetings with Ecology. I think this is just speculation on my part.

Speaker 2

When you look start looking at budgets and timeframes and reality in regards to how long it's going to take to clean up Hanford, the numbers now are between $400,000,000,000 $600,000,000,000 as defined in some different reports That something has to be done to address that budget requirement and the timeframe that that's associated with. I think the ecology has come around that while vitrification still is their preferred approach for treatment, The grounding has to be in that mix, and I think they've embraced that. We've the meetings we've had with them I have been very supportive, and, it does seem like it is making they're making progress and embracing that as part of the solution.

Speaker 7

Well, I'm certainly not going to argue with that, but I would point out that as it relates to vitrification being their preferred process, They did mention that specifically that, you know, vitrification for on-site disposal is necessary, but they Seem to be pleased with the fact that the TBI would be taking the waste out of the state. So I think I'm not going to say that they favor TBI more than Vitrification, but they seem to be totally okay with that now. And I wonder how much of that, I mean, perhaps has nothing to do with that at all, but it seems like another Party that sort of come on board is obviously you have this partnership now with the labor unions. So I mean it seems to be that every The government entities are now on board with TBI. Is that your sense as well?

Speaker 2

Absolutely, Aaron. That's a good way to state it. Across the board, including DOE, DOE has had a tough time accepting as well. The NAS meeting you into helped a lot. I think the congressional delegations have been very supportive.

Speaker 2

They've started To question DOE as to how they're planning to use grouting as a supplement to vitrification And requesting DOE to be accountable for it. In recent congressional draft, congressional language In both the House and Senate, there has been language that has addressed that as well. So I think overall, everyone's kind of Planning on it more. There's been press releases recently that grouting has been part of the budget discussions To be included in there as an assumption for DOE as well, so in the near term. So I think that overall everyone has grabbed a hold of it.

Speaker 2

I think it also helps that frankly that the vitrification plant is progressing forward and looks like it's going to be able to be operational In the near term, since the whole road map is the only refers to as, is coming together and grouting is an important part of that.

Speaker 7

Yes. And I know in the we're whatever they refer to it as for the thing that came out here recently as it relates to grounding, there were 3 companies that were mentioned, they could treat it, but it seemed at that meeting, the tribal nations and Oregon DOE, I think it was, they seem to be heavily opposed to shipping any untreated waste out of Hanford and going through their territory. Is there any way even for them to get the waste out of Hanford and not go through any of those territories to the others that were listed And that final document?

Speaker 2

Yes. That is exactly right. Those documents have all defined 3 different options And Energy Solutions and WCS could both treat this waste at their facilities in Utah and Texas respectively. And so there's always been an option. But at this point in time, to answer your question, they would have to truck it out.

Speaker 2

There's not rail access on-site. So you'd have to truck it With a lot of shipments and a lot of shipments on the highways Versus the approach that we're providing or the alternative we're providing, which is to grout it locally And in rail, the solidified stabilized waste for disposal, in a lot less transportation, a lot less risk. And the WER and the EA both have defined that approach, a local approach to this as being the least risk approach. Now, where the DOE We'll consider those in their final strategy or not remains to be seen, but those are options that they could consider. I'd have to believe that with the reduced risk of doing it locally as defined in the EA As well as the transportation risk and the less number of shipments and all the other things associated with doing it locally, I would have to believe that Treating it at our facility would be the best value overall to the government.

Speaker 7

Okay. Thank you. Final one for me then is just as it relates to Italy, the JRC, and just trying to track some of that, get a better idea of what's going on. Are you able to talk about any of the reactors that would be part of that contract?

Speaker 2

The JRC job is just a very specific quantity of drums of waste that are currently buried

Speaker 6

At the

Speaker 2

JRC facility in Esprit, Italy. So it's just 6,100 drums of a very specific waste form And that job is only for the waste located at the JRC site. So it could be more than just the 6,100 drums. It's open ended, but that's the base scope, which we value in the $45,000,000 range. So There's no other reactors or anything that's going to flow through there necessarily whereas that's currently defined to flow through there.

Speaker 2

They could open it up for other Facilities or other opportunities to ship ways out of Italy, but right now that's the base scope. So that's pretty much it.

Speaker 7

Great. Appreciate your time guys. Thanks for all these explanations for

Speaker 2

us. Thanks, Aaron.

Operator

Thank you. The next question is coming from Alan Denzer. Alan is a Private Investor. Alan, your line is live.

Speaker 2

Hey, Mark, congratulations. Thank you, Alan. You done did it and hopefully there's a profitable progression ahead. Let me just ask you about the next The foreseeable future. Regarding the possibility of a government shutdown, which seems to be more of a probability than a Possibility at this point, how would that affect the company and what are you doing to prepare for its possibility?

Speaker 2

Thanks. Yes. Government shutdowns typically haven't had a significant impact on us. It could slow down some waste shipments And but most of the work that we do is referred to as essential, that comes through the DOE budgets. So CR would be a little bit of a threat because as you know as CRs, there are some restrictions on new projects.

Speaker 2

The government has to chisel out about 20% of their budget for during the CR to allocate it for Maintaining safety and that kind of thing. So CR has more of an impact on procurements and those kinds of things. Government shutdowns haven't had a big impact on us in the past. Typically, our waste streams are coming, they're funded, And there's a safety component to it that you need to keep moving with it as opposed to store it. And The only real threat to me to answer your question or to my view is that some procurements may get delayed And new projects might get delayed, but existing ones should be sustainable for the most part.

Speaker 2

All right. Thank you so much. Keep on doing what you're doing. Be good. That's great.

Speaker 2

Thanks, Alan. Appreciate it.

Operator

Thank you. And the next question is coming from Stephen Fine from So Fine LLC. Steven, your line is live.

Speaker 8

Congratulations guys on your quarter. Can you hear me?

Speaker 2

Yes, we can see. Go ahead.

Speaker 4

All

Speaker 8

right. Thank you. I'm sorry. Hi, speaker. You mentioned the new Agreement with the labor union.

Speaker 8

Do you expect the labor union to Provide any political support in your efforts in Hanford?

Speaker 2

There's an obvious political connection with a union like that. 598 has got Very large group of constituents in the Central Washington area. They have a beautiful facility with Enormous training capacity and they're very politically connected. So I would there is a certain amount Of ability to access different figures and managers in the area, We certainly have not entered into this agreement with that as our focus. We sincerely entered into the agreement because We really believe that their provision of labor with the training facility they've got and the tradition they have Providing safe workers would give us the stability we need to ebb and flow with these large DOE Waste Contracts.

Speaker 2

So while there may be some political advantages to that, particularly associated with this administration, Our objective really was to be able to provide that stability as the grounding starts as well as some of the DFLAW work that's also going to be coming up and making sure that we've got the people we need In a small town, the town of 250,000 to make sure we've got the people that we need to meet the obligations we're going to have.

Speaker 8

Okay. All right. So that was my next question because you did mention in your presentation initially That you're experiencing labor shortages. So, am I correct that, that would help Any labor shortage problem out in Amherst being connected with that union?

Speaker 2

Absolutely. That's exactly right. And we are having we're all struggling. I think Old Town is because there's just not that many people. Hanford's hired a lot of people And taking a lot of people from us, because their benefits package is better and they're More competitive in regards to compensation than we are.

Speaker 2

We're commercial, so we have to compete with people. They don't have to. And It's a different environment. We have we'll be able to replace people, but with the numbers we're talking the levels of numbers we're talking about for these Two projects, the DFLAW and the TBI type of work, we're talking a couple of 100 people at max. And boy, having the 598 working with us gives us Confidence that we can meet these obligations.

Speaker 8

How are you dealing with if this is If labor shortage is consistent nationally and internationally, how are you dealing with that?

Speaker 2

Yes. We've had a few issues at the other two plants, but not quite to the extent we are at Hanford. We have had some issues with Folks just like everybody else in the country is having with labor, and we've been able to find folks. We've had to increase Our rates, our salaries, we've chewed into margins a little bit because of that, and our rates will catch up to it in regards to what we charge. But we've been able to find people.

Speaker 2

We're almost fully staffed and we maybe have 5% or 10% availability or openings at the labor level at each site. But Hanford far and away has been the biggest impact because of the Hanford facility or let's just say our Richland facility because of Hanford. The ones at Oak Ridge, to a lesser degree and the ones at Gainesville, have are even less. So, We've been able to deal with it, but it has had an impact, and we've been fortunate to be able to manage it.

Speaker 8

Has your productivity been impacted by climate change?

Speaker 2

Our productivity has not been impacted by climate change at all that I can think of. Our productivity has been Impacted only really by the labor issues we just discussed, but not by the heat That I could that I'm aware of. Okay.

Speaker 3

If you were to build a

Speaker 8

plant In Great Britain with Westinghouse, how long would you expect it would take to build that plant?

Speaker 2

Right now, we're estimating We've been working on design with Westinghouse in a very slow Progression because we're waiting to hear about this award. But with where we are right now On Permitting and Design, we're looking at best about 18 months from the award date To 24 months, but probably someplace in between. But the current schedule is 18 months, to answer your question.

Speaker 8

With regard to Hanford and the opening of the vitrification plant, Would the secondary waste just come to you or would you have to be permitted or whatever?

Speaker 2

We are permitted for it now. We can accept it now. We have a contract with The department for this type of waste through an IDIQ that we use for most of the DOE sites. So rates have been provided And they would when they generate the waste or near generating the waste, they'll most likely Enter into a task order with us, a task order RFP, we'll respond to it and then they'll ship it. So that's typically the way it works.

Speaker 8

With regard to the 2,000 gallon tank test, there was a mention of a Public comment period. Why would there be a public comment period if money has been legislated? And basically what I've read, it's basically said this is this should happen.

Speaker 2

Yes. The public comment period is for the RD and D permit that the state has to consider And that's for extraction of the waste. So I believe it's I'm not sure if it's driven by record or what it's driven by, but There is an RD and D permit that's required for DOE to get permission to extract the waste. And I'm not sure if I addressed your question or not, Stephen?

Speaker 8

Yes. I guess I'm Confused because this has been going on. I mean, the money is there. You did the first part. And I guess the issue here is This should be a more it would just seem to me it would be a more direct occurrence.

Speaker 8

Why should there be a discussion now with money legislated with etcetera, and all the time that's gone by.

Speaker 2

Yes, it's part of the process. I'm not sure exactly what the regulatory drivers are for

Speaker 8

And the last question is with regard to the rod in January. I mean the rod clearly the spirit of that rod clearly states that or gives or infers One would infer from it that DOE does not want to transport waste Long distances and therefore you provide that for them. But in addition, there were 2 other things. 1, they stated that all waste would be In small only small containers, drums or totes. And further, it was stated That the secondary waste would come back to Hanford.

Speaker 8

So I guess I'm somewhat confused. I don't know where maybe I'm confusing the discussions that how can there be a conversation With any other suppliers, we're in material would have to be shipped longer distances or Not make sense in small quantities.

Speaker 2

Yes. I think you get a little confused. The DFLAW plant As addressed in the ROD, as you said, it was just for treatment and disposal Locally at Perma Fix and large reason for that is because as you said, it all gets disposed of on-site at Hanford at their Waste sell at Hanford. So it would not make any sense to ship anything out of state and then bring it back for disposal at their facility. What we were referring to what I was referring to in regards to alternatives was the environmental assessment for TBI, for grouting.

Speaker 2

So for grouting, because it's not getting disposed of in state, had alternatives. Again, They increase with risk when you leave the state for the grouting part of it, but that's where the alternatives come

Speaker 8

All right. And again, yes, I guess I was not clear. But I guess, What hits me if they put out a rod and they underscore that, hey, we want to Not travel a long distance. We want to only ship in small containers How these other manufacturers were in Represent long distances to get the waste to them. And I would imagine as a former chemical manufacturer That shipping in small containers would absolutely be very expensive and make no sense.

Speaker 8

Anyway, that's Yes.

Speaker 2

It's anticipated that the DFLAW waste will go anywhere besides to us regionally or locally.

Speaker 8

Well, I'm talking, yes. Okay. All right. Well, thank you. And again, congratulations on a great quarter.

Speaker 2

Thank you, Steve. Thank you.

Operator

Thank you. There were no other questions at this time. I will now turn the call back to the management team for closing remarks.

Speaker 2

Okay. Thank you. I'd like to thank everyone for participating in our Q2 conference As I said, we remain extremely confident in the outlook for the business. We appreciate the continued support of our shareholders We look forward to providing further updates as developments unfold. Thank you.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
Perma-Fix Environmental Services Q2 2023
00:00 / 00:00