Perma-Fix Environmental Services Inc (PESI) 2008 Q4 法說會逐字稿

Greetings and welcome to the Perma-Fix Environmental Services fourth quarter fiscal 2008 conference call. At this time, all participants are in a listen-only mode. A 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, David Waldman of Crescendo Communications. Thank you. Mr. Waldman, you may begin.

Thank you. Good morning everyone, and welcome to Perma-Fix Environmental Services' fourth quarter 2008 conference call. On the call with us this morning are Dr. Lou Centofanti, Chairman and CEO and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing fourth 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 revision 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, and welcome everyone. All I have got to say it has been quite a year, very exciting and lots of events. The growth we experienced in the fourth quarter of 2008 was accumulation of a year's worth of milestone achievements, all of which should be very highly beneficial to the company's futures. The milestones included the successful refocus of our business to emphasize the nuclear waste segment, a company-changing contract win, long awaited permit to treat radioactive PCBs, new alliances, expansion of capabilities and a -- probably one of the biggest for long term is the dramatic change in view of the administration and on environmental clean up.

During the fourth quarter, our revenue increased 46% to $23.5 million, which compares to revenue of $16.1 million in the fourth quarter of 2007. The main contributor to revenue growth in the fourth quarter of 2008 was the beginning of the Plateau remediation contract for the clean up of the Hanford nuclear waste site in Washington State. It is both the size and scope of this contract that makes it especially noteworthy. We began work on the Hanford contract on October 1 with the project really kicking into gear on November 1. Derived approximately $7 million revenue from this project in the fourth quarter of 2008 and expect annual revenue contributions for onsite work to be approximately $30 million for the five year duration of this contract, with an option, of course, to renew for another five years. The Hanford contract is of great significance to us. We are pleased to be working on a project of this magnitude and in recent months, we've added approximately 177 people to our staff to support this contract. While the primary focus of our work under the contract is managing the facilities at Hanford, we believe our role at this location also gives us visibility regarding the waste throughout the site.

We also received -- we are also very excited to finally receive our long awaited permit from the EPA in November of 2008 to commence storage and treatment of radioactive PCBs. This opens the door to a whole new revenue stream for us and until now, there have been no commercial options for this type of waste. Now that we have a permit to handle radioactive PCBs at our DSI facility, the Department of Energy is expected to move ahead with its plans to close the TSCA incinerator in 2009. The -- in everything we are seeing today is that probably within two months, they will stop accepting waste at the TSCA incinerators, so we are very excited about that. Difficult to estimate the size of the market for radioactive PCBs, but there are indications it is substantial, and we are uniquely positioned to address this market.

Another important area of focus has been expanding our capabilities into higher activity and higher level waste. To date, we have been treating unique and classified waste for a specific client at our M&EC facility. We hope to expand these services to include other DOE facilities, Department of Defense waste streams in 2009, both in Oak Ridge and eventually in Hanford. Complementing all of the progress we made on the revenue side of our business are the operational enhancements that were implemented. Our objective has been to refocus our business on higher margin nuclear services. In doing so, we sold three of our underperforming industrial waste facilities while retaining three that are solid performers. As a result of divesting our underperforming industrial facilities, the industrial segment has swung from a loss of $2 million in the fourth quarter of 2007 to a profit of $1.2 million in the fourth quarter of 2008 with an even stronger performance for the 12 months of 2008 versus 2007. Both nuclear and industrial segments were profitable in the fourth quarter and full year.

EBITDA for the fourth quarter of 2008 was $2.5 million versus $540,000 in the fourth quarter of 2007. For the full year, EBITDA was $6.8 million versus $4.8 million, 2007. In terms of external factors that are expected to very favorably impact Perma-Fix, we believe it will be the beneficiary of a portion of the $6 billion stimulus package allocated to DOE for nuclear waste clean up, which is expected to be spent over the next two and a half years. While the $6 billion in stimulus money allocated to nuclear waste clean up is certainly good news we have also seen the Department of Energy environmental budget go from $5.2 billion in 2008 to $6.4 billion in 2009. The stimulus plus the increased budget represents a dramatic escalation in funding over the next several years and should favorably impact Perma-Fix. In contrast to the difficulties in the overall economy, we are excited about the positive developments that have taken place at Perma-Fix over the past year as well as the prospects for the future. With the new administration's interest in environmental issues, we are in a strongest position in our history to win new business.

During the first quarter of 2009, we continue to see the effects of the old budget within the nuclear segment as the groups within DOE rework their budget. Nevertheless, we started to see the positive effects of both the stimulus and the new budget towards the end of the first quarter. We should see really the biggest effects, though, occurring in the second quarter and expect dramatic improvement beginning in the second quarter and then moving through the balance of the year. As a result, we expect to generate revenue of more than $100 million in 2009, up from $75 million this year. Historically, our EBITDA has ranged in the range of 10% to 15%, assuming current trends continue. If, depending on when the stimulus and the ramp up in the new budget occurs, if they occur more rapidly than slower, we could be at the higher end of that range in 2009. We are -- I'd like to reiterate, we are extremely excited about the outlook for the future. The new improved budget, the new stimulus plan, our involvement in Hanford and our new PCB permit. As a result of all of these initiatives, we are now in the best position in the company's history and look forward to delivering exceptional value in 2009 and beyond. With that, I'd like to now turn the call over to Ben Naccarato to discuss the numbers, after which we will open it up for questions. Ben?

Thank you, Lou. Starting with revenue, our total revenue from continuing operations for the fourth quarter was $23.5 million versus last year's fourth quarter of $16.1 million, an increase $7.4 million or 46%. The nuclear segment revenue was up $6.7 million or 51% for the quarter versus the same period last year. This revenue increase was entirely due to the contract at Hanford which began on October 1 and generated approximately $7 million. Revenue for the remainder of the nuclear segment was relatively flat. In addition, the industrial segment revenue was up $750,000 or 32.8% for the quarter, and the engineering segment was also relatively flat.

Total revenue for -- from continuing operations for the 12 months ended December 31, 2008 of $75.5 million versus the prior year of $64.5 million, an increase of $11 million or 17.1%. The nuclear segment was up $9.6 million or 18.6% compared to 2007. Excluding the Hanford contract, revenue from -- in the nuclear segment was up $2.6 million. Keep in mind when comparing year-to-date results however, that Perma-Fix Northwest was acquired in late June '07 and therefore, 2007 results only include six months versus a full year in 2008. Industrial segment revenue was up $509,000 or 4.9%, and our engineering segment was up $796,000 or 33.2%. The nuclear segment revenue for both the quarter and the year was heavily impacted by lower waste receipts at our different facilities. Overall, our pricing held up at the -- in the mixed waste, but in our haz and non-haz, price was down a little bit. In the industrial segment, revenue growth was impacted positively by the price of oil for both the quarter and throughout the year.

Turning to cost of sales, cost of sales -- total cost of sales for the quarter was $17.7 million versus last year's $11.9 million. Nuclear segment costs exceeded last year by $5.8 million or 59.8%. This increase was almost entirely related to the Hanford contract, while costs for the reminder of the segment were flat. Total costs for the 12 months ended December 31, 2008 were $55.3 million versus last year's $45.5 million, an increase of $9.8 million. Perma-Fix Northwest cost of sales was higher than prior year by $5.7 million as 2007 only included the results from the third and fourth quarter. Excluding Hanford and the Northwest facility, cost of sales in the nuclear segment were down $702,000. Costs were down primarily due to lower volume processed and disposed, offset partially by higher costs related to revenue mix. In the industrial segment, expenses were lower than prior year by $1.3 million due to lower transport and disposal costs related to a government contract which we terminated in 2007.

Turning to gross profit, our gross profit for the quarter was $5.8 million or 24.5% of gross revenue versus last year's $4.1 million or 25.6%. Nuclear segments gross profit accounting for approximately $1 million of this total increase in gross profit. Hanford gross profit totaled approximately $1.5 million. The remaining $700,000 increase in gross profit came from the industrial segment as a result of strong oil sales in the quarter. Gross profit for the 12 months ended 12/31/08 was $20.2 million or 26.7% of gross revenue versus last year's $19 million or 29.4%. Our Perma-Fix Northwest facility gross profit exceeded the prior year by $3.2 million as 2007 only included the third and fourth quarters. Excluding Northwest and Hanford, our nuclear segment gross profit was down $5.6 million due to lower volume and mix of waste received. Industrial segment gross profit was up $1.8 million, reflecting again the strong oil sales.

Turning to SG&A, our total administrative costs for the quarter were $5 million or 21.3% of revenue, up from the $4.6 million or 28.6% of revenue last year or last quarter. The drop of SG&A as a percent of revenue is the result of adding the Hanford contract with minimal incremental administrative costs. Total administrative costs for the 12 months ended December 31 '08 were $18.8 million or 24.9% of gross revenue compared to $18.1 million or 28.1% in the prior year. Perma-Fix Northwest costs -- SG&A costs were higher by $1.2 million, again due to a full year of operation in 2008. Other administrative costs were down due to lower payroll and travel throughout the company. Income from continuing operations for the quarter was $826,000 versus a loss of $2.7 million last year. The loss in 2007 included $1.8 million of asset impairment expenses at our Perma-Fix Orlando and Perma-Fix of South Georgia facilities.

Income from continuing operations for the 12 months ended December 31 '08 was $920,000 versus a loss of $2.4 million in 2007. Net income applicable to common shareholders was $725,000 versus last year's net loss of $7.4 million. 2007 net loss included the impairment charge at Perma-Fix of Orlando and South Georgia as discussed, as well as impairment charges of $3.9 million from our Perma-Fix Dayton and Perma-Fix treatment services facilities which we sold in 2008. Net income for the 12 months ended December 31 '08 was $1.9 million versus last year's net loss of $9.2 million. Net income in 2008 includes $2.3 million gain on the sale of assets of our discontinued operations offset by $1.3 million of losses from these same facilities that we divested in 2008.

Our earnings per share for the quarter was $0.01 per share versus a loss last year of $0.14. 2008 earnings per share as of year-to-date was $0.04 per share compared to a loss of 18% -- or $0.18 last year. EBITDA from continuing operations was $2.2 million -- this is for the quarter -- versus $540,000 last year. EBITDA from continuing operations for the 12 months was $6.5 million versus $4.8 million last year for the 12 months.

Moving to the balance sheet, of significance is our increase -- is the increase in our finite risk sinking fund on the asset side, which increased from $6 million to $11.3 million. Much of this increase was due to additional financial assurance requirements at the Perma-Fix Northwest facility, which totaled $4 million last year. We also paid our annual payments on our original policy of $1 million. On the liability side of note is the accounts payable, which increased by $5.2 million as we incurred significant costs to reduce our legacy waste obligation, which was part of our acquisition of Perma-Fix Northwest. In addition, cash requirements to fund the finite risk sinking fund resulted in a slowdown in accounts payable payments. Unearned revenue was down $600,000, reflecting lower receipts and the company processing more backlog.

Finally, a summary of our cash flow. Our cash provided by continuing operations was $4.2 million for the year offset by approximately $3.7 million used in -- by discontinued operations. Cash provided by the proceeds of the sale of the three discontinued facilities was an additional $6.7 million. $981,000 was used for capital spending, $5 million, as discussed earlier, was used to fund our financial assurance policy and finally, our net financing used or reduced debt was $2.1 million. With that, operator, I'll now open the call to questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) The first question is from the line of Tim Petrycki with Jesup & Lamont Securities. Please state your question.

Hi, good morning, guys.

Hey, Tim. How are you?

Good, good. Just some housekeeping first. Ben, can you walk through the one time gain in this quarter?

The one time gain was the sale of our Perma-Fix Orlando facility.

The property on it.

The property -- I'm sorry. The property. We had two sites for Perma-Fix of Orlando side by side. They were next door, and we were able to sell one of them and consolidate the operations on the other site.

Got it. In terms of the SG&A, and we have seen it creep up during the year, obviously because of Hanford. Is this kind of $5 million a quarter the proper run rate to use? And then second of all, should we think about, kind of any of the SG&A over $4 million-ish variable, meaning almost all of it can be passed through onto the contract?

Well, the SG&A, we are continually looking at addressing that number. A lot -- the nice thing about the new contract was we were able to incorporate it with pretty minimal additional G&A. The $4 million is being variable on the G&A side, I think our G&A is a lot of -- a big number, a number is sales and marketing, which as results continue to improve, you'll see that go up some due to commission type and additional travel, et cetera. So I think $5 million right now is probably a good starting point. So again, we are always trying to reduce that number.

But as an overall percentage of revenue, should it remain in the --

Yes, I think what you want to look at is the fourth quarter as a better indicator, obviously times four because you don't have that impact in the first three.

Sure.

So I think we would like to see, it has been a company's objective to get that number which has been up, as you know, in the mid-20s for a number of years, to get that number down around 20 or lower if possible. But that's an objective right now.

Yes. We have a lot of fixed costs as I've always said, as the revenue ramps up, you see the effects of that as we see a large part of that falls to the bottom line.

Understood. But on the same token, you seen it up; in the first quarter it was $3.8 million and actually in the fourth, you are at $5 million. I am trying to find out how much of this is Hanford related versus just kind of fixed overhead increasing.

In the -- say that again, Tim. In the first quarter --

It was $3.8 million, and you exited the fourth quarter at $5 million.

I'd have to look back at the first quarter, because there could have been something unusual about that number.

Got it. And the PCB permit shouldn't cause any increase in SG&A, I take it?

No, very minimal.

Got it. Any visibility of the timing of the stimulus dollars? I know everyone's heard that sometime in the next week or so, it should hit the sites, but after it hits the sites, we've also heard that there are going to be teams of people on each side calling the contracts. So that by the time it gets to you, do you think we are a quarter away or are we a month away?

There's a lot of waste on the sites that have to go off as we sit here. So that what we are seeing is that projects that have been on hold because of the pretty dramatic cutbacks over the last two years are now starting to break loose where they're planning and saying they're going to send. It is -- there's a lot of planning going on, there's a lot of discussions, but it's sort of like a tsunami. For those of you who have been in tsunamis, the first effect of a tsunami is everything suddenly gets quiet and recedes, and then you look ahead and see a tidal wave coming at you. So we're -- it is very similar. And the timing is, I think we are starting to -- they're in the planning, they're starting to, even on the sites, figure out what's going to happen. The money though is probably -- the first sites that see money are Hanford, and that's still a week or two away, and then the other sites will probably start seeing their money, and that is a commitment that they can spend it. So they all have a good idea what they're going to get, but the actual somebody handing them a check saying or a letter saying you're allowed to spend X, probably will happen over the next, anywhere from two weeks to month and a half, we should start seeing things break loose.

Got it.

Near the end of the second quarter is sort of what I -- is a very realistic time frame.

Hey Tim, it's Ben again, and just a thought on your G&A question. If you are looking at our first quarter 10-Q then that would be before we recast discontinued, so it's missing the three facilities we brought in.

Oh, understood, understood.

All right.

Looking at -- on the DOE, one of the websites supposedly regarding Hanford, they threw up a PowerPoint presentation talking about some of the projects that should receive or the scope of work they're thinking about. A lot of it seems to be concentrated on the central Plateau, no?

Yes, one of their major goals would be to reduce the footprint and shrink the site down, and we think we will be a benefactor there, one, in terms of increased funding with the Plateau, so we should see more work for our onsite people and we will probably have to add more staff with the onsite piece. And then the second part of that would be whatever is done on the whole complex will, in the end, generate waste.

Right.

And we think it could be very large numbers. It is just a question of timing since we are the end of the pipeline.

Right.

They have to do the work first, although there is a lot of waste sitting there that has not been able to move because of funding.

And then finally, there was an article about you guys trying to get a permit up in Hanford to treat PCBs. Is it actual treatment, or is it just handling of PCBs?

It is actually a treatment permit, is that they have some special PCBs there onsite in soils where we will treat them for them at Hanford with one of our processes and then send them back to the site for disposal. They will not have to go to DSSI for destruction; they are below the regulatory limits. So that we can treat them there and then send them back directly after we treat them for disposal.

And having a hearing on April 7, if everything goes well by April 15, are you going to be able to start treating them, or is this a longer process?

That's -- like everything, it will take several months.

Okay.

To go through the process just like the PCBs. The hearing will be people ask questions and raise concerns or not. They need it badly at the site, so I don't expect a lot of negative. And then there will be a comment period, then there will be a review period and then the state at some point will issue a permit. So you are talking end of summer, midsummer.

Got it. In terms of your ability to do this work, would the treatment be covered under existing contracts, or would you have to go out --

It's covered under existing contracts, and it's also -- we will use an existing treatment unit. So there won't be any added costs, no need for new contracts, our existing contracts will cover this.

And on the conservative side, how big of an opportunity is this?

Hard to measure. It is probably a couple of million dollars. Whether that's over one year, three years, ten years, it's not a -- it will be a nice steady stream, hard to measure.

That does it. Thanks, guys.

Yes.

Thank you. Our next question is from the line of Robert [Braus] with Wunderlich Securities. Please state your questions.

Hi Lou, hi Ben. Congratulations. You have got a lot to be excited for.

Thank you.

Just continuation on the line of questioning as Tim asked, with regards to the stimulus package and the recent posting by the DOE of what potential scope of work, it listed a lot of things that are under your subcontract with CH 2. You have said that roughly $30 million on onsite, $10 million to $20 million on treatment. Do you see that number getting larger, or do you see it speed -- that work speeding up faster than before? How do you see that occurring?

Well, there will be two things. One is we expect to add more staff, so that should increase the revenue. It is not going to be a doubling though. It will be at 10% or something at that level. Then, with -- the important thing is the added funds into the Plateau will allow us to do a lot more work with the existing staff. So we will see a lot more waste coming out of the site, both on the Plateau and the river corridor; both of those should generate a tremendous amount of waste, because they will be doing work and the work will generate waste.

So the $30 million certainly can increase and then the offsite --

Yes, the (multiple speakers) will -- should increase by -- like I said, it's going to be more like a 10%-er, though. But the offsite work should increase dramatically, and that is hard to judge at this point until we -- the plans are more firmly put in place and timetables are developed. And we really expect to see two things. One, there's existing waste onsite that can now probably move offsite because they'll have the funds and then the second is they'll be doing projects, digging up old waste, tearing down buildings that will generate a lot more waste.

So will your -- as this starts to occur, will your onsite margins start to increase because there is more revenue --

No.

-- where you meet -- because it's being sped up, the milestones are being met quicker, so you may have a higher margin?

No, they're at cost plus there, so it's pretty much a headcount plus a small profit there. So if we add 10%, then we get a 10% increase in revenue with the, what is it, 6%, 8% profit margin on it? The big effect will really be the waste generated.

And the growth dollars, of course would be up.

Right.

And switching gears, with regards to the new budget, how is that going to start -- how long is that going to start to take -- to work its way into the system and outside of Hanford, how do you see that working through to Perma-Fix and the timing of that?

Same thing. I think we're seeing -- their new budget, they have to spend by -- remember, it's not the end of the fiscal -- it's-- the end of the fiscal year's September, so they are getting a lot of money that they need to spend in a very short period of time. So the problem, again, goes back that it just takes time to move the battleship in terms of where it was going to now where it should be going. So we are seeing a lot of activity, a lot of planning. Plans have been developed, are in place on what they want to do, now they just need to be approved, work through the system and the money released. And it is just real hard sitting out here not right in the middle of it to know what's a realistic time frame. But I think -- the comments I have heard from people is to expect it to slowly ramp up and just start really seeing big effects come end of May, June, somewhere in that period.

Just two more questions and I will get back in queue. With regards to the new permit you're applying for in Northwest, that is microencapsulation treatment you are going to use for the PCBs?

Yes. Microencapsulation, right.

And is that -- is the margins on that similar to what you are going be doing on the destruction side at DSSI?

No.

Okay.

It is a -- it is lower.

Okay. And then of the $7 million you did in the fourth quarter at Hanford, was that all contract -- was that all onsite, or some of that was treatment?

All onsite.

Okay. Gentlemen, congratulations, and when is the K going to be out?

It will be out tomorrow.

Thank you.

Thank you. Our next question is from the line of Walter Schenker with Titan Capital. Please state your question.

Okay, thanks. Hi, Lou.

Walter.

A couple of questions. You have talked and they have talked for some time, this is in Oak Ridge and the on site incinerator. There has been further movement, now that you have got your permit that would actually -- we are always dealing with the government, you are not going to tell -- you don't know for sure what the government is going to do, that they will actually try to close that this year?

From best we can tell, there has been public statements that they're closing this year, and we have also heard rumors that they have sent out memos to everyone that they will stop accepting waste at the end of May.

Okay.

So the sites have until the end of May to get whatever waste they have in. Now, whether that is true or not, I haven't seen anything in writing, I am just hearing third hand rumors. But everything we are hearing is that it is on track to close, and we are gearing up the best we can to handle whatever will come at us from that point of view.

And that would mean that in addition to the PCB business, you'll hopefully ramp up on, that could be a substantial amount of additional waste coming to you and as a given, which it probably isn't, because of the government, the end of May, they refuse to take any more waste. That --

Yes, and --

-- that logically comes to you?

Yes. I think what will happen is anybody that has anything right now going to try to get it in so that -- whether we will see a big surge after May or a little bit of a lull and then a build is probably more how I would expect to see it. Because if you have materials today, you are probably trying to get it in if you are one of the other sites. Now, and your other comment is true is that we -- the TSCA incinerator accepts more non-waste than it does PCB waste, and we can accept all of that waste. So that we should benefit if it does close, both from the TSCA side, from the PCB side and from the organic liquid side, organic waste sides. So in the long run, we should benefit both ways.

I'm sorry. In the long run, using your type of pricing and assuming that substantial amount of that waste total comes to you, we are talking about $5 million, $10 million, $20 million?

Well, the TSCA incinerator over the last couple of years has had a very spotted history. Some years it runs, and some other years it doesn't work and that's why they want to close it; it is so old and worn out. As I look at and average it out, it is maybe $10 million a year. If you would price the -- if the material were priced going into the TSCA incinerator, somewhere in that range.

Okay, which would mean that with -- if PCB ramps the way some of us hope it does and they actually close, somewhere here you would have to look to expand your capacity?

If we receive $10 million worth of waste into our unit there, we would be not quite at capacity, but approaching it, yes.

But that would be without receiving any PCBs --

Any commercial PCBs.

-- commercial PCBs.

Yes. It would start pushing us there.

Okay. And just one other question, because I've had this discussion, I just want to make sure. The $5.2 billion (sic) you referred to in '08 as DOE, that's money actually spent?

The way it worked is Congress had approved a DOE budget of about $5.8 billion. Bush withheld the money and would not spend it and only allowed DOE to spend $5.2 billion. So their effective budget for '08 was $5.2 billion. And so what has happened is that Congress not only increased the budget then from the $5.8 billion to $6.4 billion, but also then with the new administration, said they're going to spend it, the full amount.

Okay. Thanks a lot, Lou.

Thank you. Our next question is from Gregg Hillman with First Wilshire Securities. Please state your question.

Good morning.

Good morning, Gregg.

I had a question -- well, two things. One thing about the glass vitrification, can you just talk about that? What would be the market size and what would it take to get your vitrifier fired up in Hanford?

Well, as you know, we have got a -- we are -- we have been reviewing strategies for high level. We have a facility in Hanford that is permitted and licensed for a vitrifier; there's a unit there that we could rebuild. At this point though, we are still reviewing. We have looked at several technologies, we are still not -- still haven't picked the technology to go down a road with at Hanford. It's a monster market. As you know, the Department of Energy is building a vitrification unit that is designed to treat somewhere between half and one-third of the waste there, especially the higher activity materials. So that leaves a pretty large amount of waste that has no home as we sit today, and DOE is very concerned about that and looking for options on treating the remainder of the waste and having a path forward. We think we are in a pretty unique position with our site, our facility. We are right next door to the -- we are right at the fence line. So -- and we are permitted and licensed for a vitrifier at our site. So we are going down a path. I mean, it is a multi-billion dollar project in terms of what will eventually be spent. DOE is spending $12 billion just to build a unit to handle one-third to half the waste. So we see a big opportunity and at this point, we are working hard on a path forward. We have three or four options we see, but we haven't decided on which way to go.

Okay. And then also, could you comment on that facility in Texas that is supposed to be permitted to accept radioactive waste and how that would affect the picture in terms of competitive bidding for some of these contracts?

Well, Waste Control Specialists has a facility in west Texas. They have been going through licensing and permitting the last, gosh, ten years. And they have now been issued a permit and license. They still have some conditions to meet.

Must have (inaudible).

The facility is a disposal facility. So that -- and it can provide some competition on the commercial side for different kinds of waste. It would also provide a backup to the existing options that are out there. So for the industry, it will be very good. For us, we would be very excited to have another disposal facility to use. So, I think within a year, they could be operational, they're very close.

Okay. Thanks, Lou. I appreciate the comments.

Thank you, our next question is from the line of Rich Molinsky with Max Communications. Please state your question.

Hello?

Hey, Richard.

Congratulations my friend.

Thank you.

Great to see the revenue growth, great to see the cash flow coming in. And with all of these different projects you have coming on, are we going to see more dilution to the stock, or are you okay without -- that we are going to stay pretty consistent with the amount of shares outstanding right now?

As you can see from our balance sheet, we are, we are tight.

Right.

With the growth that's occurring and the investments we have made, we are tight. At this point, we think we can handle it from a cash flow point of view.

Okay.

And that's sort of our first priority is to make every effort to do that.

Yes, but I just hate to see you waste money at $1.60 a share or $1.70 a share, you know?

Probably not as much as I would.

(laughter) Okay, all right. Well, thank you again. Keep up the good work and hopefully you will be able to continue to grow with the cash flow.

All righty. Thanks.

Thank you so much.

Our next question is from the line of Graham Tanaka with Tanaka Capital. Please state your question.

Yes. Could you just talk a little bit more about profitability? There's a lot -- you are discussing all of these contracts and it seems historically, the company's never really been able to bring it to the bottom line. So if margins are as low as 6% to 7%, I am trying to understand how you can generate a profit with a leveraged balance sheet.

The -- well, you started seeing it in the fourth quarter, and that was with our nuclear treatment group seeing fairly low revenues. I think we're fairly fixed cost so as the revenue ramps up, especially on the waste side, you will see it pretty much all falls to the bottom line. So what you are seeing, you have got about a $30 million revenue source that generates 6%, 7%, but it also covers our overhead, existing overhead. Then -- but the real money maker is our waste treatment. And if over the last year or two -- I mean it has always been very consistently profitable. In the past years, we've had problems in industrial or something that have eaten up that bottom line profitability. So, if you see growth on treatment, you will see very dramatic growth on income, because the incremental margin is tremendous, since all of our fixed costs -- all of our costs to treat waste are there. If we bring in one drum or a thousand drums, we have the same cost. So if we can increase the revenue side, you will see dramatic growth from a profitability point of view.

What is it, how does pricing set to determine that?

Pricing is we have contracts with the Federal -- all of the agencies, all of the sites, all of the utilities, they're all in place. It is existing contracts and just a question of will they send us one drum or a thousand drums.

Is that price per drum?

It is priced per drum with surcharges for the components in the drum. So the actual price per drum is usually a minor component of the actual price because of how complex they are, what's in it, what's the problems in treating it.

All right. I think you've mentioned before something about cost plus.

Well, that's our -- we have one contract with -- at the Hanford site with -- under the Plateau contract with the CH2 (inaudible), it is cost plus. That's about $30 million in revenue. So that's our only cost plus contract. The rest are all fixed price.

So of the $100 million that you talk about this year, how much of that is industrial and how much, how could you breakdown the waste treatment versus --

Approximately $10 million is industrial, approximately $30 million is the Plateau cost plus contract. The $60 million, approximately $55 million, $60 million is waste treatment, which is fixed price.

Okay. And that fixed price, those fixed prices don't have any inflation escalators?

Yes. Yes, they have, we get cost of living increases on those. In general. Every contract is a little different, but most of them have escalators. But it is just cost of living.

And then, there's discussion about new potential business from the stimulus plan or money being released. What would that pricing be on that?

That would -- it would flow a little bit into our Plateau contract at the $30 million, you should see an increase there, which I said will be approximately, maybe 10%. The -- but the big increase will be that the stimulus and the increased budget will mean that people will do a lot more work. When they do more work, they generate more waste, and that will go into our -- that will flow through our fixed price contracts into our waste treatment sites. That's where the big increase will really be.

And it will be under the same pricing.

It will be under the same pricing.

Okay.

Because we already have the contracts with all of the sites. In general, we don't have to rebid them. They're pretty much evergreen because they're not like a cost plus contract, they're fixed price. They're really more purchase order type contracts. You send us ten drums, there's no guarantees what they'll send us, and the only guarantee is the price.

Okay. And on the balance sheet, this morning, what you're projecting for increase in a reduction of debt, total debt or net debt in the course of this new year.

I'm sorry, I can hardly hear you.

The increase, what do you project for the increase in debt during 2009?

For 2009, it is, at this point, any extra cash will go into paying down debt, but with the growth in the business side, I think by the end of the year, you should see it fairly flat.

Yes. We have some debt coming due, some current debt coming due but as you know from a recent 8-K we did that we increased our debt $2 million to pay for the PCB financial assurance. So I would say flat to pretty good.

Pretty -- I think that's a good -- at this point if we have extra cash, it will pay down debt. But with the growth in the business, the growth in the cash flow, all that will require some cash. So the net effect I think will be, I think a conservative way to look at it is flat for the year.

Yes. How much for $1 of sales revenue increase, say it looks like you're talking about a $25 million increase in revenues. How much would you need to have in terms of increasing working capital?

Can you repeat that?

Yes, what kind of increase in working capital will you need to fund a $25 million increase in revenue this year?

Very little. The contract -- the main increase comes from the contract, and that requires very little additional working capital.

They pay very rapidly, our relationship there and our agreements there, so they pay very rapidly, so it has required very little working capital.

Thank you.

Thank you. (Operator Instructions). Our next question is from the line of Joe Cooper with Cooper Investment Advisors. Please state your question.

Good afternoon, gentlemen. Most of the questions that I had intended to ask have already been asked, but I'd like to ask you, of the outstanding shares, what percentage are held by insiders of the company and of institutions such as mutual funds?

Well, the second one is a little easier, whether, our institutional ownership is up near 60%, I believe.

Yes.

And we are -- about 6% is internal. With Insiders, directors and (multiple speakers)--

Right.

Okay. Thank you very much.

(Operator Instructions). It seems there are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thank you very much. We appreciate your support, look forward to a very exciting year and look forward to talking to you on the end of the first quarter. Thank you all.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.