Perma-Fix Environmental Services Inc (PESI) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Perma-Fix Environmental Solutions First Quarter Conference Call. At this time, all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS)

And it is my pleasure to introduce your host, Mr. David Waldman. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to Perma-Fix Environmental Services' 2008 first quarter conference call. This morning, we have Dr. Lou Centofanti, Chairman and Chief Executive Officer, and Steve Baughman, Chief Financial Officer.

The company issued a press release this morning containing first 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'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.

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 Securities and Exchange Commission. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. With that taken care of, I'd now like to turn the call over to Dr. Lou Centofanti. Please go ahead, Lou.

Thank you, David. Welcome and good morning, everybody. I'd first like to talk a little about the results for the quarter. We're very pleased. Revenue within our nuclear segment increased by 13% over the same period last year, which included sales from our newly acquired Perma-Fix Northwest facility, and that facility, of course, has, as I've said in the past, been performing very well.

Despite the strong performance of this facility, we continue to feel the impact of constrained budgets and current bidding cycles at DOE. We still expect 2008 to be up year-over-year and although we've indicated in the past it will be more heavily weighted towards the second half of the year as the various contracts are awarded and DOE gets in to more a mode of performing work and less focused on bidding.

Nevertheless, these cycles have presented us with some outstanding opportunities that may allow us to expand our core niche of nuclear waste treatment outside of our existing business.

As I've said in the past, we have bid, we are, on two teams, bidding on contracts for outside management and we anticipate bidding on several more over the next several months as the contracts go through their cycles.

The advantage, of course, of being on site is -- first, these are fixed price contracts that would add incremental revenue. Second, it would allow us to assist DOE to better manage their streams in the early cycles, which would not only help accelerate the cleanup process, but also help expedite the flow of waste to ourselves and other facilities.

Whether or not we win these onsite contracts, we anticipate DOE will accelerate its cleanup efforts in the second half of '08. And we are uniquely positioned to capture a meaningful portion of the planned waste treatment at these sites since we are the only commercial operator with the technologies, license and permits to treat most of mixed waste.

Another goal in 2008 is to demonstrate our capabilities and put in place a plan to treat higher level and higher activity radioactive waste. We have a major effort now going on to provide alternatives for DOE, in their plans, to treat higher activity waste.

There will be a significant amount of money, in the billions of dollars, spent trying to deal with this higher activity waste over the long term and we think we can provide a cost-effective alternative for treating this waste.

Of course, finally, we have, also, our PCD permit. We're happy to say it is continuing to move through the process. In fact, we're very hopeful, in the next two to three weeks, that EPA will issue public notice for our permit and that will be a very exciting moment, because it then starts the last phase of the regulatory clock.

And as we've talked about before, once these permits are issued, we'll be the only company out there that can treat the waste. We believe that there's a very sizeable, yet untapped government and commercial market.

Turning to the industrial side, we've now sold both the Baltimore facility and the Dayton, Ohio facility for a combined $6 million. We're very hopeful, in the next several weeks, to be able to make further progress on selling pieces of the division.

So to wrap up, we're making great strides with selling the industrial segment. At the same time, we see enormous progress within our nuclear division. We're very excited moving into the second quarter. We're seeing increased activity and we're also seeing enormous opportunities, as I mentioned, on the onsite treatment market and on the opportunities in higher activity waste.

With that, a final note, we had also issued a press release today that we've implemented a shareholders' rights plan. Given the weakness in the stock and currently what's in the works for the company, we thought it would be prudent to have an anti-takeover in place.

We've also been going through a review of our general corporate procedures as part of the 404 process and thought that it was prudent to put that in place at this time.

Of course, we are very excited about the near-term and long-term outlook for the company and think we should have a very, very exciting year this year. Now, I'd like to turn the call over to Steve Baughman so he can discuss the numbers, and then we'll open the call to questions.

Thank you, Lou. I'll now discuss the income statement and balance sheet and cash flow statements.

Total revenue from continuing operations for the first quarter were $14.9 million versus last year's same quarter of $12.9 million. The nuclear segment realized revenue growth of $1.6 million or 13.3% for the quarter versus the same period last year.

Excluding our Hanford facility, revenue from nuclear decreased by $2.1 million or 17.2% in the first quarter. Revenue from government generators decreased by $1.8 million, excluding government revenue of $3 million from Hanford, or 26.7%.

This decrease in overall government receipts was the result of lower volume received a change in revenue mix processed to waste with a lower average price per drum, and it goes back to what Lou was telling you earlier that we've seen a drop on DOE waste here before the bids are awarded.

Hazardous and non-hazardous waste was also down due to lower volume of waste received at lower average prices per drum. Offsetting these decreases was an increase in other nuclear waste revenue which exceeded prior year as the result of a shipment of high activity and high margin waste from a non-DOE customer.

Excluding Hanford's backlog of 6.6 million, the backlog of stored waste within the nuclear segment at quarter end was 8.4 million versus 10 million at year end. The decrease in back of 1.6 million, excludes Hanford, reflects both increases in processing and the (inaudible) in the quarter, as well as the slowdown in waste received.

The decrease in revenue from LATA/Parallax is due to significant progress made by LATA/Parallax in completing legacy waste removal activities as part of their cleanup of the Portsmouth project for the DOE.

Revenue from our engineering division, SYA, increased approximately $325,000 in the first quarter compared to last year, as billability rates increased from 73% to 82%.

Total cost of sales was $11.1 million in Q1 versus last year's $8.3 million. Nuclear costs exceeded last year by $2.5 million, mainly due to $2.7 million in costs generated at our Hanford facility. Nuclear cost of sales, excluding Hanford, decreased by 3.1%, while revenue was down 14.6%. Overall, the volume of drums processed was up 7.4%.

Gross profit for the quarter was $3.8 million or 25.6% of gross revenue versus last year's $4.6 million or 35.6%. Excluding Hanford's gross profit of $1.1 million, gross profit declined by $2 million year-over-year. The decline in gross profit was mostly due to revenue mix and higher cost of sales at our Oak Ridge and Gainesville facilities.

Total admin costs for the quarter were $3.8 million versus last year of $3.7 million. Hanford accounted for $662,000 in our admin costs in the first quarter.

Operating loss for the quarter was $328,000 versus positive $709,000 last year. The loss from discontinued operations was $710,000 versus a loss of $1.7 million last year. Most of last year's loss was mainly due to the Dayton legal fees and settlement costs associated with those legal fees.

Net income was $1.1 million versus last year's loss of $1.1 million. Net income included a gain on the sales of Maryland and Dayton of $2.1 million. Segment profit for nuclear was $976,000 versus last year of $2 million and SYA generated $128,000 versus $49,000 last year.

Total earnings per share were $0.02 versus a loss of $0.02 last year. Total earnings per share was composed of a loss of $0.01 per share from continuing operations, a loss of $0.01 per share from discontinued ops, and then a pickup of $0.04 per share from the disposal and discontinued operations.

Now, turning to the balance sheet, I'll just hit some of the high points that show some significant changes. Unbilled receivables were down about $2 million from year end due to increased billings at our M&EC facility in Tennessee. Current assets and PP&E related to just ops decreased due to the sales of Maryland and Dayton operations.

Our finite risk sinking fund increased from $6 million at year end to $8.2 million at quarter end. $1 million of this went towards our annual contribution to the finite fund and $1.2 million was for Hanford, which we expect to see after we come back to the company after we've completed the processing of legacy waste.

Current liabilities declined due to the re-class from current to long-term of the PNC revolver and term debt. In addition, we paid down about $4.6 million in debt during the quarter, primarily with the proceeds from the sales of Dayton and Maryland.

Now, turning to the cash flow statement, cash provided by operating activities was $1.4 million for the quarter versus $1.7 million last year same quarter.

Cash provided by investing was $3.2 million, mainly due to the proceeds from the sales of Dayton and Maryland, which were offset by the finite risk sinking fund payments and capital spending of $519,000. Cash used in financing was $4.6 million, the majority of which was principal payments on long-term debt.

The working capital position at quarter end was a negative $7.1 million, which includes the working capital of our discontinued ops, as compared to the negative working capital of $17.2 million at year end.

Approximately $7.3 million of the increase in working capital from year end was generated by re-classing the current portion of PNC KeyBank debt from short term to long term, after we received the waiver from PNC.

Now, our path forward on working capital. We will continue with the sale of the industrial segment, which should help our working capital position. We are also in the process of reevaluating our debt structure to include collateralizing our assets we acquire from the Hanford acquisition and, also, reloading our term note with PNC.

This, along with the continued progress in divesting the industrial segment, will improve our working capital position. We were also able to expand our credit revolver with the bank to include unbilled receivables generating about $600,000.

Along these lines, we are aggressively working towards getting as much of our $12.2 million of unbilled into the billed category, and then we also expect to generate working capital through positive earnings in 2008.

Finally, on EBITDA, for the quarter, we had $2.6 million versus $473,000 last year for the same quarter. With that, it pretty much wraps up the income statement and balance sheet.

Operator, I'd like to turn it over for questions.

(OPERATOR INSTRUCTIONS). Your first question today comes from [Bob McLain] of UBS. Please go ahead.

Hi, Lou. I think I missed that -- did you say -- what was the timing on the -- your thinking on the timing on the permit for PCB treatment?

Well, we believe EPA is pretty well complete in their review and their next step now is to issue public notice of the permit, which then starts a very fairly tight regulatory clock running. So that should happen within the next two to three weeks and it will be -- the public notice will be public, of course. So you'll know when that happens.

And then that period between public notice and --

Then you have public notice of 30 days and then we should then see the final. This is public notice on the technicalities of the permit. So in order to respond, you must respond to the technicalities of the permit, not whether you (inaudible). So after that, we should be able to see the permit within 30 days.

Okay. Thank you.

At the end of the period.

Good.

Thank you. (OPERATOR INSTRUCTIONS)

One of the other comments I would make is as we saw in the quarter, there was a significant weakness at the beginning of the quarter. So that as the quarter progressed, we saw sales revenue pick up significantly.

So that's another reason we think (inaudible) forward over the next six to nine months. We think we'll continue to see improvement in the numbers on our base business.

We do have a question from Wayne Miller, who is a private investor. Please go ahead.

In the press release, you talked about cutting the administrative expenses associated with industrial in the future. What's preventing you from doing it now, since much of it has already been divested?

That has been going on as we have been divesting. The issue -- as we do divest, we're restructuring how we operate the company and, in doing so, we're then able to shed cost.

So especially on the administrative side, the accounting side, (inaudible). And the problem you have there is that during the transition, the process in terms of collecting information, managing the past information, there is a tail that occurs.

So it's rather difficult to do it at the front end, because we have a lot of information there, a lot of data that goes back from old government contracts on the industrial side that we have to retain and we're still responsible if questions come up.

In the end, as a public company, though, we have a set overhead that I would not expect a tremendous reduction in our overhead, just because we need a set staff to comply with the rules and the accounting rules and do it right. So that is going on. We continue to shed cost and you will slowly continue to see improvement there.

The other side of that is we have a dramatic amount of new projects going on right now in terms of bidding on contracts, some new technologies, besides the PCB process and besides the high activity waste, that we are working very feverishly on right now. So that there are a lot of development projects in the works and we're very, very busy with new activities, and we're continuing to invest heavily into those right now.

Okay.

Thank you. There are no further questions at this time. Please go ahead.

Well, we thank you all very much. I'm just impressed that we answered every one of your questions or whatever. So thank you again for your support and look forward to working with you in the future. Thank you.

Ladies and gentlemen, this does conclude your conference call for today. We thank you for your participation. You may now disconnect your lines, and have a great rest of the day.