Perma-Fix Environmental Services Inc (PESI) 2006 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Perma-Fix Environmental Services second quarter fiscal 2006 conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Waldman, Crescendo Communications. Thank you.

Mr. Waldman, you may begin.

Thank you. Good morning, everyone, and welcome to Perma-Fix Environmental Services' 2006 second quarter conference call. This morning we have Dr. Lou Centofanti, Chairman and CEO; and Steve Baughman, Chief Financial Officer. The Company issued a press release this morning containing second quarter financial results which is posted on the Company's website.

If you have any questions after the call or would like additional information about the Company, please contact Crescendo Communications at 212-671-1020.

I would 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. All statements on this conference call - other than the statements 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 Securities and Exchange Commission.

The Company makes no commitment to disclose any revision to forward-looking statements or any facts, events or circumstances after the dates hereof that bear upon forward-looking statements.

With that taken care of, I would now like to turn the call over to Dr. Lou Centofanti. Please go ahead, Lou.

Thank you, David. I'm very pleased with our results for the quarter although I know we can do better on our ongoing initiatives to improve profitability.

In this quarter alone, we saw growth margins improve over 500 basis points to approximately 35%. It is important to note that SG&A, within our industrial segment, was unusually high due to some accounting adjustments, specifically for some environmental liabilities we have been revisiting and we rebooked.

We also had several other adjustments that were made during the quarter that we can talk about later.

This was offset by a one-time gain from discontinued operations, again related to environmental accruals at our Michigan operations that have been [going] some rather expensive review. Nevertheless, our net income increased over 44%. This marks the fifth consecutive quarter of profitability which we think reflects the stability and steady improvement of our business.

As we look at the divisions although our nuclear revenue was down slightly for the quarter this is due to uneven nature of our way streams and an unusually strong second quarter in nuclear last year. In 2006 we have been very successful in more evenly receiving waste shipments throughout the year. So we don't get the spikes that you have seen in previous years.

This has allowed us to process way streams more efficiently. Even still a single shipment of waste can swing our revenues for a given quarter so it's still very important as I've always said to measure growth within our nuclear segment on the annual rather than a quarterly basis.

Given our strong pipeline in nuclear, new initiatives I've discussed and I'll discuss in a moment, we remain quite confident the division will continue to sustain annual growth while generating strong cash flow.

Let me take a moment to discuss some of the initiatives that we have and all of these we have discussed in the past, but just to revisit within the nuclear division. First is the work now going on with India. We [did treat] a special waste to fall outside of the normal classification of mixed waste. These will be special nuclear materials, classified waste and higher level waste.

As all of you know, we received a $9.4 million contract in March and we are continuing to look for projects that are similar. Clearly we are the only company with the capabilities, permits, and proven track record to treat these highly specialized waste (inaudible).

As we expand our treatment of higher level and classified mixed waste, this should continue to have a positive impact on revenue and gross margin. Our approval at Nevada Test Site to dispose of low-level and mixed waste is -- we are continuing to focus on that. It is a very unique option there in terms of being able to assist DOE with moving waste into their landfill. And we should continue to see improvements and projects based on that project.

We have run the PCB test at our facility for the PCB destruction permit. We're presently waiting results from the analytical labs. We're fairly confident that the test went well and, hopefully, within by the end the year we should have in place a PCB permit. If there is some problem with the testing it may extend it several more months.

But at this point, our present schedule is to have PCB approvals in place by the end of the year. So you can see we are continuing to focus on some new areas. We are very confident nuclear segment will continue to grow at a steady pace and continue to generate strong cash flow.

As we add any incremental we also benefit from large [EFIX] cost infrastructure. Returning to the industrial segment we're very encouraged by the progress we're making. While the revenues were down, again, as I've said in the past this reflects our deliberate decision to shed lower margin way streams and contracts, which is having a favorable impact on our profitability.

We're still working through several unprofitable contracts which will continue to have a negative impact on this segment. But we do see with these contracts light at the end of the tunnel in terms of the expiration of a major one end of September and two others that we are working hard to improve right now.

At the same time we continue to focus on the sale and continue to replace our lower margin contracts from more lucrative work. A continued drain on the Company has been the legal expenses related to our lawsuit in Dayton and it has been an ongoing distraction for the team. We continue to be optimistic that we can settle the action in Dayton in the very near future, and settle it favorably.

Although industrial residue may remain flat for the balance of 2006 we expect our gross margins and profitability to continue to improve. Longer-term, we believe new sales incentives we are implementing to focus on higher margin to oily waters, fuels and recycling waste into fuel will have a positive impact on our industrial segment revenue and margin.

Turning to the balance sheet, we have made significant progress. Paid down 15 million in debt over the past two years and with the recent exercise of warrants we have generated an additional almost $10 million which will allow us to pay down the remaining -- which has -- well, actually, allowed us to pay down the remaining part of our revolver as of June 30th and should over the year result in about $400,000 of interest savings. We expect to use the remainder of the proceeds to either focus on paying down any remaining debt or to increase our cash reserves.

Finally in the quarter, I was pleased to welcome Steve Baughman to our new senior management team as CFO. Steve brings outstanding credentials with over 20 years' experience in the waste industry most recently serving as Vice President of Finance for Waste Management where he oversaw financial activities for 2.5 billion of operations in the Southeast.

So to wrap up we saw a 542 basis point improvement in our gross margins Companywide as our industrial gross margin increased from just 9% last year to over 23% this year. On nuclear, we had a good quarter even though it didn't match up to last year. Looking ahead, expect nuclear will continue to grow steadily while our industrial division makes progress towards profitability.

I remain extremely optimistic and upbeat about the balance of 2006. We have more than sufficient near-term capacity and our existing infrastructure is highly leverageable. Although we will have some additional expenses in the third quarter related to the move of our corporate headquarters to Atlanta, we intend to keep a tight rein on SG&A and CapEx.

We do not need to or we do not need or plan to raise any additional capital anytime soon as a result. We look forward to delivering some meaningful, meaningful value to our shareholders.

On that note I would like to turn the call over to Steve Baughman so he can touch on the numbers and we will open the call to questions. Steve.

Thank you, Lou. Before I jump into the financials I would like to take a moment to discuss why I'm so excited about joining Perma-Fix at this time.

I have worked in the waste industry through most of my career and I feel Perma-Fix fulfills a very unique niche in the waste industry. Perma-Fix is more than a services company; it's a technology company with very proprietary processes and tremendous barriers to entry which sets it apart from the rest of the waste industry.

Since joining Perma-Fix, I've had the opportunity to visit all of the nuclear facilities and several of the industrial facilities. And while I have been very impressed with the operations, I believe there are a lot of opportunities for improvement. Some of those are -- such as tightening expenses, eliminating redundancies and increasing financial oversight. Most importantly, keeping a close eye on the quality revenues and making sure our energies are directed in the right areas.

As we focus on higher margin revenue and bring expenses in line, there are tremendous opportunities for margin enhancement. While it is premature to comment on specific areas we're targeting, we are carefully evaluating expenses across the organization. I'm also committed to avoiding any unnecessary dilution to our earnings per share, making sure we remain focused on delivering value to our shareholders.

Now let me take a moment to discuss our results for the quarter. I'm going to primarily focus just on the quarter and stay away from the six months because I think you're all familiar with the results for the first quarter. What I would like to start with is page 5 of the earnings release income statement.

Revenue for the quarter was $23.5 million versus 25.1 million last year. The breakout of revenue by segments for the quarter was 13.1 million for nuclear, 9.4 million for industrial and 900,000 from engineering. The decrease in revenue per quarter on a year-to-year basis of 1.6 million was made up of 1 (technical difficulty) from industrial, 700,000 from nuclear and an increase of 236,000 in engineering. We continue to focus on replacing lower profit generating industrial contracts with higher profitable contracts, which caused our deterioration in our revenue stream. Lou mentioned this earlier in his discussion.

In the nuclear segment, we saw a change in our revenue mix towards the lower margin waste streams and a reduction in disposable past (indiscernible) revenues. However this is more reflective of our waste stream processing schedule and not indicative of future revenue streams. And once again that gets back to what Lou was saying earlier, that we see some variety or some changes in our revenue streams. But for the year it pretty much balances out.

Gross profit was 8.2 million versus prior year of 7.4 million. Gross profit was 1.3 million versus (technical difficulty) last industrial. This is mainly due to improved operating efficiencies, a reduction in less profitable commercial contracts, and last year's adverse effect of an oil contamination to one of our waste streams for about $500,000.

The nuclear segment gross profit was 529,000, less than last year due to a change in our revenue mix that I talked about earlier.

Overall gross profit margin was 34.7% versus 29.2% last year. The industrial segment experienced an increase in margin of 676 basis points to 23.4% for the quarter, due to the efficiency improvement in prior year contamination expense I mentioned earlier. Nuclear waste margin declined by 160 basis points to 43.6% for the quarter due to the revenue mix.

On the SG&A expense it was $6.8 million versus 5.7 million last year. The increase was due to the following. A big chunk of that increase is in the environmental pool adjustments which was about $797,000. We also had a hazardous waste tax accrual adjustment that went back to 2000 and 2001 for 210,000. So that is about $1 million in total for that swing in SG&A. Income from continuing operations decreased to 779,000 from $1.5 million last year, mainly due to the environmental accrual and halfway stack. I'm not sure (inaudible).

Income from discontinued operations was $1 million per quarter. This was a result of our quarterly review of all environmental accruals. It was determined that the amount of (indiscernible) expense to be incurred for our discontinued operations in Detroit, Michigan, would be reduced by initiating an alternative use of the property. Net income increased to $1.8 million per quarter from $1.2 million last year or a 44% increase. Net income per common share on the basic and fully diluted method was $0.04 versus $0.03 last year same quarter and for the six months ended in June, our earnings per share was $0.05 versus $0.03 last year.

Next I would like to turn to the balance sheet which is on page 6 of the earnings release and hit some of the high points there. Cash increase from 94,000 at year end of 713,000 - this was mainly due to the transfer of restricted cash to cash and the exercise of some warrants late in the quarter. The restricted cash balance decreased from 511,000 to 40,000, due to the successful conversion of our bonding requirements at one of our industrial remediation sites from restricted cash to a line of credit.

[Total] accounts receivable and unbilled receivables aggregated to 30. (technical difficulty) million at the end of the quarter versus 28.6 million at year end or an increase of 1.6 million. Unbilled accounts receivable increased to 15.6 million from 11.9 million at year-end or a $3.7 million increase. This was due to approximately 4 million and $2 million from two of our larger nuclear customers that had a delay in the acquiring proper certifications for final disposal which allows us to bill or invoice our customer.

If you look at the long-term ,liabilities the big item there was in the discontinued ops. It declined from 3.1 million to $1.7 million. This is because of the reevaluation of our environmental accrual adjustment I explained in the income statement earlier.

On page 2 you may have noticed that we added a section for EBITDA to this quarter. Briefly EBITDA for the quarter was $3.5 million versus $3 million last year same quarter and was $5.8 million for the six months ended in June versus last year's $4.8 million. So we have shown some good improvement in EBITDA.

Finally, I thought I would just finish up with, talk about just the warrants just to update you. Through last Friday, we have issued 5.8 million shares or approximately 5.8 million shares of common stock or about $9.9 million of cash of what's been generated. And as Lou said earlier, we're going to focus on looking at probably paying down some additional debt and then increasing our cash flows for the remainder of the year.

So to wrap up, I'm very excited to be joining Perma-Fix at this time. Although we were satisfied with the results for the quarter, there is a lot of room for improvement as we grow nuclear and leverage our infrastructure. On the industrial side we have to improve the quality of our revenue, tighten expenses and work diligently to return the segment to profitability, which I'm very confident we can do.

Operator, I would now like to turn it over to you for the questions.

(OPERATOR INSTRUCTIONS) Peter McCullen with Jessup and Lamont.

Steve, welcome aboard. Just wondered if you can talk a little bit about your confident statement about industrial which has been a bugaboo for some time, getting to profitability. What gives you the confidence of your statement?

I've spent like I said I've spent a little bit of time at the industrial sites and good trend quarter to quarter. As you probably know Peter we changed the management there late last year and we -- I guess to sum it up we kind of lost sight of industrial while we were so focused on nuclear. So I feel very confident that we got the right people in place to get folks like [Laurie McNamara] who is the CEO of the company leading that charge.

And he's very well organized. He has weekly calls with each of the industrial sites. And they talk about what they're doing to improve and frankly we are seeing the results. They are actively managing that process and I'm confident there are opportunities there as a company going forward. And so I'm real upbeat about it.

Second if I may. As you go forward given the revenues are down a little bit as you look at the back half will it be to take advantage of some of that fixed overhead and have improving reviews for the third and fourth quarter?

Right now we think you're going to see the revenue growth in the second half on nuclear. Industrial for the second half, especially in the third quarter, should shrink so it's a little hard to know overall from a company point of view where the revenue will eventually end up. But the shrinkage is good on industrial and the growth on nuclear is good. So at this point from a profitability point of view it's a focused point of view.

So as we see it today we're very pleased where revenue is. Of course we would always be happy with more profitable revenue on industrial and that is coming as we said.

Tim [Petrika] with [Kimball Partners].

Just on the adjustment, that is more of a one-time charge meaning we shouldn't see SG&A in the 6.5, 6.7 [lane] range in the third quarter?

We don't anticipate that. Just to give you a little background there, we are required periodically to review all our remediation accruals or environmental accruals and that process is pretty rigorous. We actually went through this about a month ago. I went up to Oak Ridge and sat down with our remediation manager and went through each of our environmental cleanup sites and what has happened is we have obtained new information since the end of last quarter and obviously since the end of last year that required us according to the accounting pronouncements to record additional accrual. But obviously some of that came back in the form of additional income and the discontinued operations.

So it is something we're going to be doing every quarter. But to answer your question, I don't anticipate that we will have the swings that we had this quarter.

So most of that one million is that quote unquote noncash charge? So kind of EBITDA in a run rate is closer to 4.5 million versus 3.5 million?

Yes. I would agree with that. Yes.

That came on the industrial site. Correct?

Correct. That was all industrial.

Taking out that 1 million again, industrial was basically breakeven. Loss of $100,000.

Yes. It was right close to breakeven. That's correct.

Consider for the balance of the year, most of the revenue upticks, well, all of it is going to come on nuclear but it also seems still a couple of hundred basis points and margin improvement we could see between now and the end of the year.

We have been running pretty well on the margin on nuclear so to say we're pointed to a whole lot better I think might be a bit premature.

Yes I think that's -- we've got to be a little careful there. I think we're running very high margin rates right now and at the upper end of our normal range. So --

I understand that but I'm saying considering that industrial has improve 25% in you had negative growth in nuclear.

Okay. I'm sorry I misunderstood. Yes. I would agree with that. Yes you'll probably -- well (MULTIPLE SPEAKERS) actually if you're looking at gross profit, none of these environmental rule adjustments flow through gross profit. They are all down in the SG&A line. So I'm not -- it is hard for me to say it is going to improve.

We would -- industrial is running at the lower end of the range it needs to be today. So.

(MULTIPLE SPEAKERS)

It's real close being where it needs to be to start showing some better numbers. So a few percentage points there will have a big impact on the overall numbers. And we do need to get industrial up. Same time nuclear is at the upper level of where we would normally think it is going to run.

So, again, there could be a little trade-off there depending on product mix, total revenue, etc. on the nuclear side. Then, as we focus on those contracts and the industrial I think we're going to see some improvement there because we do have some opportunities to focus on some of the poorer performing contracts.

So should we see industrial margins stay at the 25% plus level for the balance of the year?

We would -- well, I -- we hope so. How's that for an answer? I mean if we are at the 25% level you'll see half decent numbers coming out of the (inaudible).

But what I'm trying to say is that because of the nuclear loss in sales you lost some leverage on the gross profit line there. Given that as you see growth in the nuclear segment in the back half of this year, you should recover some of the margin you lost.

On nuclear?

Yes.

Well except we're running right now some fairly high margin business. So there's - again it is a balance there between the revenue which provides a lot of leverage versus some high margin projects.

Steve, you're talking about reviewing some of the cost. Is there kind of a target SG&A you have in mind either in absolute dollars or percentage wise that you would like to see (indiscernible)?

It is a little early to say what it would be. Just to fill you we are starting a budget process. Actually today is our kickoff meeting for revenue and with - probably within the next two months we are going to really focus hard on all of our overhead costs. And what I mean by that is, we are going to take the approach of a zero-based budget which if you're familiar with is, you basically have to reconcile all of your costs and make sure that they are really providing value ultimately to the operations in the field.

To be honest with you, I haven't had an opportunity to really delve into that area in detail but I will be doing that during the budget process for the next couple months. I am anticipating that we will find opportunities there.

One last question. In terms of the third quarter I know they're going to have a moving expense. So sequentially do you see SG&A flat or down? Or even higher?

I don't anticipate any -- well let me back up a little. We won't obviously have the adjustments from the accrual so that million dollars I mentioned earlier wouldn't be obviously a recurring item. So barring that I don't anticipate any (technical difficulties) in the third quarter.

(OPERATOR INSTRUCTIONS) [Vito Menda] with [Sandler Capital].

How are you? Nice quarter. Question for you. Just in operating cash flow what did you do for the quarter? And also there's a couple -- you touched on them before, it's these unbilled receivables. Could you go through that again exactly?

Let me give you the cash flow. Cash flow from operations for the second quarter was $1,180,000.

What exactly are the unbilled receivables coming from? Is that an issue of -- is there any -- how are the quality of the receivables?

Really not an issue. What happens is it's revenue that we have earned. In other words (technical difficulties) has been completed but there's either a -- there's -- we need to get additional information whether it's to get another maybe additional manifesting work needs to be done. It's usually paperwork. Time.

Is it the government that it's coming from?

(indiscernible) government. It's all contractual.

And the last question is, as you look on the horizon and you look at the nuclear landscape, just in general you've heard other companies speaking very positively on the nuclear waste and on nuclear opportunities. Are there big projects you see in the pipeline that you are either bidding on or plan depend on to bid on in the coming quarters?

Yes. The DOE, especially the DOE pipeline, is -- looks pretty good right now. So there's a lot of projects out there we are looking at reviewing and we are bidding on several as we said. Fairly large projects.

If you were to get those projects, would you be giving us updates on them?

Absolutely. Yes. You all will be the first to know.

Great. Thanks.

Dennis Scannell with Rutabaga Capital.

Most of my questions have been answered. Just a couple quick follow-ups. The true-up on the environmental liability accrual. What is it, 770,000? Was that regarding one specific site on the industrial site or was that spread throughout several?

It was actually two sites. It was our Valdosta site in southern Georgia and then we -- it's an old site in Memphis. It is about a 50-50 split.

And was it a particular contaminant that you identified or a particular -- I don't want to get too granular but I was just trying to get a sense of, was it --?

With the sites we had gone through plans on how to clean them up and had cost estimates. The south Georgia one, we had actually started a clean-up there. We had done an initial project to attempt a new technology on the site. It was not real successful.

So we've had to go back and look at some other options on how to clean it up. I mean it can be cleaned. It's not a problem. It's just we thought we could do it with the technology and it didn't work.

The second is, we just focused a lot more and are putting a lot more effort in now to clean these sites up. So we're getting closer to the end of several of them and as we have, we've had to adjust some of the costs on those two. Now at the same time on the Detroit facility we've actually come up with some ways to reduce the cost.

That's helpful. Just a few other things. You may have mentioned this and I missed it, but backlogs for the -- did you say that?

No, we didn't cover it.

(indiscernible) Kevin (indiscernible) with Saranac.

I'll get back to you.

We will get back to you in a second here on the backlog question. I'm sorry. Go ahead.

Just on the PCB permit, can you just talk about when those tests were submitted? How long do you think it will take and you said you might get a permit at the end of the year. With that be the permanent one or is there a temporary permit that you might get between now and then?

By the end of the year it would be a permanent permit - yes. There could be some interim approvals but at this point I would probably look more at the for sure permanent permit.

When were the tests submitted and when would you get -- ?

The results were about a month ago. The test was about a month ago and the results are just now coming in. So they are (technical difficulties). Labs are working on the results and in the we near future will be submitting them to EPA.

On the Michigan site I think you said that the reason you had a gain on the discontinued ops was because you thought you might be able to reduce the property. Is that right?

No. It's just the cleanup costs that we initially accrued for and our discussions with the state and more environmental work on the side we've been able to come up with [path forwards] that are a lot less expensive than the -- than our initial estimates. And so that we readjusted the estimates. So we think we can sell the property. We still think we can sell the property.

Now that we have, we are going to try to accelerate that process because now that we have much better data and we also are at least have oral agreements (technical difficulties) could have written ones shortly on the clean-up path we think a developer property has more value today than it did before because of path forward.

So do you think it's worth hundreds of thousands of dollars or millions?

The good news is 60 acres of commercial property, industrial property and a very good location next to a freeway with rail. The bad news is it's in Detroit, Michigan. So it's -- we think we can get something for it. I hate to give you a number until we really get out there. We initially had the property on the market for 2.5 million and the phones were very quiet. I think that at a lower price, we could get something but it is not in the millions.

Right. Just trying to clarify on the nuclear margins. Did you say that the margins were depressed this quarter because of the unfavorable mix but you didn't have pass through revenues so that would've been, also, zero margin? I am just trying to understand (MULTIPLE SPEAKERS)

What I was getting at is compared to last year it looks a little less but last year was a pretty good quarter for us. I wouldn't say our quarter was depressed but these are some things that added to it. And we had the revenue mix. Like Louis said early on the call, it changes. Some revenue streams are more profitable than others and it's kind of a moving target.

So what we hope happens and usually does happen is if you look at it for a full 12-month period those fluctuations pretty much balance out. But I wouldn't say it's a trend. It's the way the waste gets processed.

So the back half of the year gross margin, nuclear should be above 44?

(MULTIPLE SPEAKERS) No. We wouldn't predict that.

Okay. Thanks a lot.

Real quick. Dennis, you had asked about that backlog information. June - our backlog was 11.6 million of 2006 versus June of '05 of 6.374 million. Kind of the explanation we expect backlog levels to fluctuate within acceptable levels due to the complexity of waste streams and timing of receipts and processing materials. So it gets back to what I just said here a few minutes ago. It's a bit of a moving target and it will fluctuate from quarter to quarter. But we feel by the end of the year within a 12-month period, it balances out.

I'm sorry, operator, you had your next question.

Mr. Scannell, do you have any further questions? Your line is live.

Yes I do. I'm sorry, Steve, is that -- was that 1.7 or --?

The backlog?

Yes.

The backlog currently is 11.6 million.

11.6. Okay.

Versus 16.4 million last year, same month.

Okay. Fair enough. One last thing. Do you have a current share count because I kind of remember that there were a slug of options expiring in July. So it is kind of interesting -- interested in what the current share account is and how many -- I'm sorry warrants that were expiring in July. And how many warrants are outstanding and what stripe prices those are at?

Let me give that to you here. As you probably know, most -- some of the warrants actually came due this month. What we think is going to be the net result, at the end of March we had 44.8 million shares. And we've got 7.1 million options that are expiring between or through the end of July. So we're probably going to be at about 50 million shares going forward. That's an approximation.

Most of those shares were exercised.

Exercised will be about 52 million.

And they will be approximately left over about 3.1 million warrants. 1.8 million at $2.92 expire March of '07 and then 1.3 million at $1.50 expire in July of 2008.

Let's just hope those March '07 warrants are well in the money.

(MULTIPLE SPEAKERS) Great. That's what I needed. Thank you.

(OPERATOR INSTRUCTIONS) Alfred Freeman with Oppenheimer & Co.

You mentioned that $9.9 million came in from the exercise of warrants. How much of that money came in before the June 30th step date?

1.5 million.

So most of that money came in through the July 31st expiration date I take it. The rest of that money?

Most of it came in in July. So it's not, it does not show up on the balance sheet (technical difficulties) numbers.

Thank you.

[Ted Bade] with [One Sicily] LLC.

A few follow-up questions, one being backlog. Do you have the number for the nuclear segment?

That would be all nuclear.

That was all nuclear. Okay.

We usually don't run them backlog for industrial.

That's further declined then from last quarter of 13.6. Is that correct?

Yes, well, it was last -- I don't -- do we have last quarter? 13.

(MULTIPLE SPEAKERS) 13. Yes, that's correct.

Do you expect that to further decline or do you expect it to increase?

Usually in the third quarter we see an increase. Depending on the flow.

And then, a follow-up to the unbilled receivables. I guess it was due to two large nuclear customers -- sorry I missed that (indiscernible) obtaining permits to treat waste. Is that correct?

(technical difficulties) they've got to get some -- there's approvals along the way that haven't been gained. Just to let -- we have -- one of them was for $4 million and they received that since in the last week or so and the others are for 2 million. They are about to receive the approval. So it's probably unusually high but like I said there is probably 6 million of it we can explain with just two customers.

And I guess then, the next two quarters we should expect that just then the builds will start decreasing?

That's what we're shooting for. Because that is cash in the bank as you folks know and frankly we want to see that balance come down.

I guess just one last question on the uneven nature of waste stream and flow -- I guess you guys over the past couple of quarters have mentioned now you are going -- just want some specifics on how you will try and even it out? Is there anything you can do?

We worked real hard with working with DOE to produce some more even flow and that has worked. You see it in the numbers and quarter to quarter. We are, we've seen a tremendous improvement in the material flow. That has been our major effort.

Thank you.

George [Stubbs] with Environmental Business International.

Good morning. Just more of a top line question. I understand over the course of the last year or two that the balance of your revenues have sort of switched over from the industrial or traditional hazardous waste management side, over to a more in favor of the nuclear side of the business.

Do you see that kind of balance widening in favor of nuclear and commenting on that, could you comment sort of on the fundamentals of the nuclear side in general? Particularly in light of the fact that a major player in the industry has launched a pretty aggressive consolidation play earlier this year?

The change in revenue mix for us, we think that in the short run it will continue. That we will continue to shed some revenue in industrial. But that is being done very rationally. You know the industrial market is an extremely large market. We've identified two or three niches that we think have lots of potential. So that once we were confident, were able to operate profitably in those niches and they do make sense, I think you'll see industrial back on a growth curve. That could be quickly as near the end of this year.

So I think it's as much on our part more because of the issues we have in industrial than from where that market is. We have seen improvement in industrial (technical difficulties) as a space and we have seen improvement on the nuclear side. Your question on nuclear, there's a tremendous interest today in nuclear. You're seeing it as sort of a rebirth in the whole world.

If you look at options for global warming for energy, nuclear suddenly looks way better than anything else out there. So you have an international effort that is exploding and hate to use that word but a tremendous effort of putting new nuclear plants in many countries. China, Europe, England has a major nuclear effort and have got a lot of decommissioning they've got to do but they also see they have to replace what they have got and maybe even grow it.

So as you look internationally, tremendous new interest in nuclear. Energy Solutions, but their acquisitions has turned the industry upside down which has just given us some, we think, some opportunity. There are some -- and some risks with the new big player out there that is very aggressive, but we think it has actually created for us some opportunities.

So we see a very interesting business environment today in nuclear both in the U.S. and internationally. And the first time we are making a little bit of effort internationally. On industrial it will depend on where we can go with our industrial division. We think we have got some interest that make a lot of sense right now. We just need some block and tackle to get back to the basics there. And once we do that we think we can grow industrial. Industrial can be a very significant size business if we decide that we can operate in that space.

Thank you very much.

Vito Menda with Sandler Capital.

One more for you. Just on the international. Please expand what kind of growth you see Perma-Fix playing in England and European markets? How, ideally, what do you envision there? I know it might be too premature to say exactly what kind of role you will play, but what are in your strategic long-term vision?

The role we would play today is that we have a very unique niche, is that we can treat waste better than anybody and a very fundamental part of the equation for a nuclear solution for the world is treating the waste.

England is a good example. You've got a (technical difficulty) program going on to clean up their legacy. Probably going to spend 100 to $150 billion over the next 20, 30 years. And they have some very unique waste like the U.S. that we could easily treat today. They are in their early stages. Whether we can play a role there or not it's way too early. We're going to try, but very very early stages of development.

You have a lot of planning that has to go on. You've got a large lot of very large players spending a lot of money looking at what they're going to do and how they're going to get into the business.

So would it be a technology licensing solution that you provide?

We would need a partner. We would not go into a foreign country, build a plant without a very strong local partner. So we would provide technology expertise however you structure it. Joint venture, part ownership, licensing. Any of the above.

Is it fair to say that some of those initial talks are underway?

Lot of initial talks but it's very very -- like England it is extremely early in the game. It's like the U.S. was, early '90s I would say, as we started to put plans in place to develop the market.

Thank you.

Gentlemen, there are no further questions at this time. Do you have any closing comments?

Thank you all very much. We appreciate your continued support. We look forward to talking again next quarter and giving you an update on our progress. Thank you very much.

Ladies and gentlemen, this concludes today's teleconference.