Perma-Fix Environmental Services Inc (PESI) 2009 Q4 法說會逐字稿

Greetings and welcome to the Perma-Fix Environmental Services fourth-quarter and full-year 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's now my pleasure to introduce your host, Ms. Klea Theoharis, with Crescendo Investor Relations. Thank you, Ms. Theoharis, you may begin.

Thank you. A good morning, everyone and welcome to Perma-Fix Environmental Services' fourth-quarter and full-year 2009 conference call. On the call with us this morning are Dr. Louis Centofanti, Chairman and CEO and Ben Naccarato, Chief Financial Officer. The Company issued a press release this morning containing fourth-quarter and full-year 2009 financial results, which is also 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 filing with the US 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. I'd now like to turn the call over to Dr. Louis Centofanti, please go ahead, Lou.

Thank you, Klea and welcome everybody. Fourth quarter as you can see was quite dramatic for us as we experienced rapid growth, record earnings and continued seeing growing opportunities in the nuclear service business.

First I'd like to summarize the financial results. We saw revenue increase 21% year over year to $28.4 million. Our revenue was also up sequentially following a very strong third quarter. Nuclear segment revenue increased 29% to $25.6 million and our nuclear segment gross margins increased over 1,000 basis points to 31.6%.

Our success in the fourth quarter of 2009 was the result of our move into higher activity waste and expanding business in the service side of our efforts on nuclear. From our on site work at Hanford, we generated revenue of $9.8 million which represents a 40% increase -- a year over year increase, an 8% sequential increase in places at about a $39 million annualized run rate in the business.

Within our industrial segment, we experienced continued weakness due to reduced oil prices and weaker demand in the state of the overall economy, while our engineering segment continues to be a steady contributor to our business.

Turning to our backlog, we, as many of you know, we recognize revenue as we complete work. Our backlog tracks waste shipments that we have received but not yet treated or sent for disposal. At year end our backlog stood at $16.9 million. By comparison our backlog is up over 50% from $10.2 million at year-end of 2008.

We achieved EBITDA of $5.1 million for the quarter versus $2.4 million for the fourth quarter of last year, a 116% increase. EBITDA was also up 16% sequentially. Net income for the quarter was $5.7 million versus $725,000 for the same period last year. The fourth quarter does include a $2.4 million positive tax adjustment related to our deferred tax assets, our NOLs. And Ben will elaborate on this in more detail later in the call. Excluding this gain, net income would have still been a record $3.3 million, which equates to a several hundred percent increase over the fourth quarter of 2008. On a per share basis, EPS rose from $0.01 a share to $0.10 a share for the quarter.

As we've always stated, we have a operational base, which is largely fixed cost. As we move more waste through our facilities, we see improved margins and cash flow. And that is of course what you have seen here in the fourth quarter, with revenue up and margins improved dramatically.

We've used our cash flow to pay down debt, and our capital working capital increased by $5.4 million. Also on the debt side, we have recently re-negotiated an improved interest rate on our term loan and revolving line of credit, which we had reported earlier.

Looking ahead, we continue to position Perma-Fix at the forefront of the nuclear service business. Over the last four years our nuclear service business has fluctuated averaging approximately 20% annualized growth. We expect to maintain these levels going forward. Although I'd -- it will continue to fluctuate as we add new services and new products.

The largest opportunity as we look ahead for us in the medium to long-term will remain in the treatment of high activity waste, where we benefit from our unique technologies, know how and insurmountable barriers. As we enter 2010, we have a solid backlog. We continue to see DOE improved funding. And we're making dramatic progress moving into the higher activity waste business, where there is many streams which have no paths forward and both at DOE, utilities on the commercial side.

We look forward to a very strong year in 2010, and really have four major new initiatives underway within the Company. First, at Oak Ridge, we're undergoing major construction for our Perma-Fix II Process, which is our method for treating organics. We're presently rebuilding installing a third generation Perma-Fix II unit for organics. And it will help us process waste more rapidly and more efficiently. Also we have begun construction and close to completing on a new high activity waste system at Oak Ridge that will allow us to process a variety of higher activity waste.

Also exciting that's going on right now is at our Pacific Northwest facility at Hanford, we have now initiated plans to begin construction of a rail line into our facility. And this is a first step in a longer term upgrade of that facility to be able to handle larger volumes of high activity waste. And many of you know that one of my long-term dreams as we look, has been to really move into high level waste treatment, and a lot of these upgrades are small steps in our plan to move into those areas.

Third is, we're adding resources to expand and grow our on site service group to build upon the success we've had working with CH2M Hill at Hanford. It's our first major on site contract, and this project was very important to us to demonstrate our capabilities and help build our resume for other and similar projects. And we're just very excited to be able to work with a company such as CH2M Hill. They've just been a really a mentor for us in terms of helping us grow in this area and be an important part of their team.

Last, and lastly we have a variety of new initiatives. Several new initiatives in the nuclear shield cycle service and in other nuclear services area. And as these evolve, they're -- it's a little premature to talk about them, but as the details evolve, we will provide more details in the foreseeable future.

As you look at the time line for 2010, with the construction underway at Oak Ridge, and our Northwest, especially the construction at Oak Ridge, which does limit our ability to treat both with the upgrade of our Perma-Fix II Process and with the upgrades at Northwest and the normal DOE funding cycles, we expect 2010 to resemble 2009. Like 2009, we anticipate a very strong year with the second half of the year being much stronger than the first.

Overall we're extremely encouraged by the business outlook. We're, we're seeing a tremendous amount of new opportunities. We are very positioned with our technical expertise to take advantage of those opportunities and we look forward to a growing organic business. And it is, as we sit today, we have no intention of raising additional capital into the foreseeable future. And we think the organic growth will allow us to continue to drive EPS growth.

With that, like I say, I'm very excited. I'd like to turn the call over to Ben now who will discuss more details in the numbers and then we'll be -- I'll be back for questions at the conclusion of our formal remarks. Ben.

Thanks Lou. I'll begin with revenue. Total revenue from continuing operations for the fourth quarter was $28.4 million compared to last year's fourth quarter of $23.5 million, an increase of $4.9 million or 21%. Our nuclear segment revenue was up $5.8 million, or 29% for the quarter compared to the same period last year. Revenue at our nuclear treatment facilities was up $3 million, while our Hanford contract revenue was up $2.8 million. The receipt and processing of high activity waste as we mentioned contributed to the increase at the treatment facilities while increased staffing contributed to the Hanford contract. The engineering segment exceeded prior year minimally $53,000, while the industrial segment fell short by $952,000, with this shortfall being related to lower volume and price on used oil.

For the 12 months ended December 31st, 2009 we had revenue of $100.7 million compared to prior year, $75.5 million an increase of $25.2 million or 33%. The nuclear segment revenue increased $27.7 million or 45% compared to prior year. Our Hanford contract accounted for most of that $27 million. As you know the contract in 2008 began in October and therefore only contributed a quarter to 2008. Treatment facility revenue increased $521,000 and the engineering segment was up $188,000. Offsetting these increases was a decrease in the industrial segment of $2.7 million.

Turning to cost of sales, our total cost of sales was $19.9 million, compared to $17.9 million in prior year for the quarter. Nuclear segment costs were up $1.9 million due to the Hanford contract, which had increased costs of $2.3 million, which of course, the contract being cost plus, this is tied directly to increased revenue. The remaining nuclear treatment costs of sales were below prior year primarily due to lower material and disposal costs, reflecting lower volumes of high activity waste received in process. The industrial segment gross our cost of sales were down due to lower cost of used oil while the engineering segment cost were in line with prior year.

The cost of sales for the 12 months ended December 31st, 2009 were $73.5 million, compared to $55.7 million an increase of $17.8 million. Cost related to Hanford were higher than prior year by $21.7 million reflecting the full year of operation in 2009 compared to 2008. Cost of sales related to our nuclear treatment facilities were down $2.9 million, as volumes were down. Industrial segment expenses were lower than prior year by $1.2 million, again due to the lower cost of used oil, while the engineering costs higher than prior year reflecting increased revenue.

Gross profit for the quarter was $8.6 million or 30.2% of gross revenue, compared to last year's $5.7 million or 24.1%. Gross profit from the Hanford contract increased $547,000, mostly due to increased staffing levels, while gross profit from the nuclear treatment facilities increased $3.3 million over prior year due to the higher margin waste received and processed. The engineering segment gross profit increased primarily due to higher billable hours and higher average price while the industrial segment gross profit and gross margin both decreased primarily from the impact of the lower oil sales, but also due to a one time EBITDA charge to remediation reserve at one of our facilities.

Gross profit for the 12 months ended December 31st, was $27.1 million or 26.9% compared to last year's $19.8 million or 26.2%, an increase of $7.3 million. Gross profit from the Hanford contract increased $5.4 million, reflecting the full year of operations in 2009. Gross profit from the nuclear treatment facilities was up $3.5 million, again due to processing of lower volumes of high activity and higher price rates streams. The engineering segment gross profit was relatively flat, while the industrial segment's gross profit was down $1.5 million, again, lower revenue and the adjustment for the remediation reserve.

Our total G&A cost for the quarter were $4.7 million or 16.5% of revenue down from $4.8 million or 20.4% of revenue in 2008. Lower compensation and travel expenses primarily at our operating levels offset higher corporate costs related to consulting fees, compensation, and a one time stock option award to our former Chief Operator Officer. Administrative cost for the 12 months ended December 31st, 2009 were $17.7 million or 17.6% compared to $18.2 million, 24.1% in the prior year. The drop in the administrative costs reflects our continued focus on centralizing the Company's accounting and administrative functions and increasing revenue with minimal increase in our administrative expense.

Income from continuing operations for the quarter was $5.7 million, compared to $830,000 last year. 2009 income includes an income tax pick up related to recognition of a deferred tax asset of $2.4 million, less increased income taxes of $231,000.

I am going it take a moment to explain this tax adjustment in a little more detail. Perma-Fix currently has approximately $14 million of net operating losses, which can be used to offset income taxes. In prior years, we determined that it was more likely than not that such benefits would not be realized. Therefore we usually fully reserved this asset when using the full valuation allowance. In 2010 we determined that it is more likely than not that certain amounts of these net operating losses will be realized, as such we reduced our valuation allowance, which resulted in a $2.4 million reduction to our income taxes.

Income from continuing operations for the 12 months ended December 31st, 2009 was $9.6 million compared to $985,000 in 2008. 2009 income also includes some tax pick up we just discussed related to the deferred tax assets, less increased income taxes of $490,000, which are primarily state taxes.

Net income applicable to the common shareholders for the fourth quarter was $5.7 million, compared to last year's net income of $725,000. 2009 income included the high activity waste streams, which positively impacted income along with the tax adjustments. For the 12 months ended December 31st, our net income to common shareholders was $10.6 million compared to last year's net income of $1.9 million. Net income in 2008 also included $2.3 million gain on the sale of assets, and a $1.3 million loss from facilities divested in 2008. 2009 income benefited from the high activity waste streams, a full year impact of Hanford, and the tax adjustments.

Earnings per share for the quarter were $0.10 compared to $0.01 last year. For 2009, our earnings per share were $0.18 compared to $0.04 in 2008. Our EBITDA from continuing operations for the quarter was $5.1 million, compared to $2.4 million last year. For the 12 months, our EBITDA was $14.1 million compared to $6.8 million last year.

I'll now hit on a couple of highlights from the balance sheet. Our unbilled receivables were down $4.6 million, finishing the year at $12.3 million compared to $16.9 million end of 2008. We also recognized of course, the defend deferred tax asset of $2.4 million, of which $1.9 million was accounted for as current.

We had our finite risk sinking fund increase by $4.1 million related to the PCB permit and some of the other closure bonding requirements. Our accounts payable were down $6.1 million which is a result of paying down certain acquisition related payables that were outstanding at the end of 2008, as well as reflecting our general improvement in our liquidity.

Our backlog as we mentioned stands at $16.9 million, which is up from the $10.2 million at the end of 2008. Our debt at the end of the year was $12.4 million compared to $16.2 million at the end of 2008. Our credit facility with PNC makes up about $8.3 million of that debt. And our working capital improved by approximately $5.4 million, ending 2009 at $1.5 million.

Finally a few cash items. Our cash from continuing operations was $9.1 million. Our cash used by discontinued operations was approximately $590,000. Cash used from capital was $1.5 million. Cash used from our finite risk closure policy, $4.1 million. And cash used for financing -- to pay down financing of $2.1 million, including reductions to our PNC Bank debt of $3.9 million on our revolver and $1 million on our term note. So, to wrap up, we feel we have strengthened our financial position with improved revenue, earnings and cash flow. On that note, I'll open the call to questions. Operator?

Thank you. We'll be now conducting a question and answer session. (Operator Instructions). Our first question is from Al Kaschalk with Wedbush Securities. Please proceed with your question.

Good morning, guys.

Good morning Al.

Congratulations on a very strong operating quarter.

Thank you.

Not to chip away from that, but is there any special items in there at the operating line that would help push up on the nuclear side in particular at 20%, because if I recall, you had set -- you had directed us toward the higher teens level from an operating margin? I ask because in going forward, I suspect with the strength that you've commented on, we should see something in the high teens on the higher quarters. But if you could just comment on that, that would be great.

Ben?

Well, I think, Al, sort of we did probably exceed expectations in the quarter, probably because we just found the processing went well. We kept our, one of our units at M&EC which we expected to bring down mid December. We kept it going through the end of the year. And it's the same phenomena of the more revenue we can push through our -- the majority of our top sales are pretty fixed, so I think what you're seeing -- what you saw was a reflection of the exceeding the revenue for the quarter. If that answers your question.

But the mix, I guess, was perhaps better --

Well.

Things are strong, I understand that, I just want to try to appreciate.

Well, things are -- the mix was, in the end it's still the -- we've got fixed costs, so the more revenue you run through a facility, the better the margins. The margins improved.

On the mix, Al, the issue there was, remember with the high activity waste we had just received it all prior, at the end of third quarter, and there was kind of this unknown of how much and how quickly we were going to recognize it. So we did see more of the high activity waste recognized in the -- than we probably anticipated at first.

Okay. And then a second part or second question. Though it sounds like from your planned construction activities and expansion that you're visibility on the next several quarters if not five quarters is pretty good to be making these investments to capture a little bit longer term streams and in places where you have an interest for the Company to go.

Yes, we see -- we have good visibility, but until you get a contract, of course, there's no guarantees. And being fixed price and, as we've always done, we see a need, we see waste out there that has no home, we've many times made investments a little before we had a contract in place so that we could actually get that contract. So yes, we have good visibility, we see the waste out there, and we're making investments to make sure that we are able to capture it and treat it.

Right. But with the reference -- the work that you're performing it would seem that would be a pretty strong referenceable base.

Well.

Particularly Hanford and CH2M Hill.

Yes, but it's still -- yes. We have visibility but there are no guarantees here.

Sure.

For what we're going here. But we also see very limited options for the waste that we see out there.

Excellent. Well we'll look forward to continuing to monitor your performance.

Thank you.

Our next question comes from Tim Petrycki with Jesup & Lamont. Please proceed with your question.

Hi, guys.

Hi Tim.

All right. Where to start? In terms of the fourth-quarter revenue looking at kind of where your backlog remains, was it more recognizing the shipments or was it more processing, kind of flesh that out a little bit?

Well, I think it was a little of everything. Again, we, we brought in a lot of waste, and were able then to characterize it, unload it and get it into our system where we recognize an certain fraction of it, so there was that going on. It also helped our backlog and everything else, but -- so it was a combination of material coming in for treatment, treatment and the volumes, the front end revenue we recognize on some of those volumes.

Sure. So it was a mixture of pulling out your backlog plus increased shipments in the quarter?

Right. Now you know our backlog basically stayed flat.

Right.

So yes, so yes, it was -- but some of that we have new stuff coming in and we had some of that backlog then being treated, so the net effect was it stayed flat, which was good since we're now at a pretty good backlog level.

Sure. In terms of some of this high activity waste that you speak of, is this stuff, I mean, you have milling around DOE we said for quite a while now, is this stuff it's been there for a while, well obviously it's been there for a while. Do you know that is being treated at some point, and now that the funding is available you see it (multiple speakers) and the willing of the DOE site managers to kind of move forward with this?

Ah, yes. What we see is that there is -- a lot of this material has been there for a very, very, very long time, and so as funding becomes available it is moved out because it's very high on their risk list in terms of the potential risk of this material at the sites to environment and people.

So we've seen a willingness to move some of this. We've also seen increased activity at the sites where they're now generating waste. And of course, it happens that DOE is very focused right now on the -- on moving some of the higher activity waste. So there is a higher priority within DOE to ship waste, which has higher activity, and also there's a increased activity, which is generating higher volumes of this waste.

Sure. Anything from PCBs in the quarter or is this still -- I read something about TSCA, how I think they are shutdown sufficiently now and advocating (inaudible).

Yes they're totally closed. The PCBs you know it's not been a bad year for PCBs but it's not been a year we'd quite hoped for, although it's probably close to what I'd predicted. PCBs are like all these waste event driven. The facilities that really have the big volumes, have been more focused on other projects, so in the short run here we haven't seen a lot of PCBs but we are benefiting from the TSCA incinerator being down both on PCBs and other materials. Because in one sense it was a competitor to us on anything that contained organic streams, and as we sit today, we're about the only option for organically contaminated streams unless you try to do something really weird.

And that kind of brings me to what you were talking about before in terms of being able to -- your organic facility that you're going to build out in Oak Ridge. You already have an incinerator, you already have a process in place for organics, what exactly --?

Well, it is -- it was our -- the unit treats organic contaminated solids, and most of the time that's where -- the kind of waste we get. So it's a very important unit for us, and that it's the first step in treating properly organic contaminated solids. So if they have solids in them, it goes into that unit, that unit separates is step one, separates the organics from the solids and dirt, or whatever it's in. And then the -- we can then destroy the organics, and the solids are -- then meet the treatment standards and can go on to a landfill.

One of your -- actually before I get there. I love how you laid out the four initiatives you see in kind of the near and medium term. You say that you're not going to raise any capital. Is it going to dramatically affect CapEx?

Not at the moment. Most of these projects are really -- like the rail line, it may cost us $0.5 million when it's all said and done, but -- and it's a very important step, because in bringing in the higher activity waste there's a real concern that -- with our customers about moving them across the road. So to be able to use a rail line gives us a very important option in terms of transportation to move them into our facilities. So everything I laid out at this moment is not a major capital item. It's more the finesse of having the right permits, licenses, and putting together the right technologies for the type of waste that we see.

Sure. In terms of, now it looks like (inaudible) is a foregone conclusion. Beside high activity, have you made any progress on the high level, B and C stuff? I know that's kind of something that you've always kind of worked on.

Well, it's -- I guess is my approach has always been one more small steps to get there, and everything we're doing with the higher activity gets us closer and closer, and then also gives us the experience of handling materials that are much different from the low level waste. So there's a lot of activity going on at DOE because that's where we're really focused on the high level waste is. And at this moment I don't see a path forward, but we're getting closer and closer to having a lot of the pieces that could define a path forward, but nothing else has happened either. You've got large volumes of high level wastes that -- at DOE that has no home.

Sure.

And we think we can come up with an option to -- that would be acceptable in the end, but that's a -- as I've always said, that's a longer term project.

Sure. Sure.

Yes.

And just to -- I want to clarify, during your prepared comments you said that 2010 will be somewhat like 2009. You meant in terms of kind of the cadence of the quarters, right, meaning that the back half will be stronger than the first half?

Yes. Yes. We're into that mode and I've seen it year after year, very, very strong at the end, and not as strong in first and second.

Yes.

Really first and then starting to ramp up into the second, third and fourth, yes.

And then, Ben and Lou as well, great job on the balance sheet. Any kind of guidance you can give to where -- we sit here a year from now talking about your 2010-year, what your balance sheet might look like?

Yes, I mean, I think as Lou said, if we just -- even if we duplicated 2009, our cash flow was very strong. We started 2009 with some, some debt and payables that were pretty high, if you add back the payables, which probably were out of whack last year, we probably had cash flow from operations more like $14 million, $15 million. So we see, we see significant debt reduction and the objective in our goal is cash on the balance sheet by next year. But that's, again, based on a successful 2010.

All right. Guys, great job. Thank you very much.

Thanks Tim.

Our next question comes from Walter Schenker with Titan Capital. Please proceed with your question.

Hi Lou.

Hi Walter.

I am trying to drag more out of you than I'm going to get. But re-ask some of the question that's been asked. First on PCBs, before you had the permit we all speculated that not only is there a bunch of stuff held by the government, but that there's probably a backlog of unrecognized PCBs held in the private sector, are you seeing any flow from the private sector?

Small, small amounts in the -- we do see material out there, but -- and we have not seen it flow.

Okay.

Yes. And, well I won't go into a lot of detail on that, but that's sort of summarizes it. There's still -- it's still there, and, but we haven't seen a lot flow.

Okay. And secondly on the backlog of the expectations and the seasonal patterns, in a year you expect full to be up nicely, my term, from last year I'm not going to quantify it. You would expect despite the seasonal flows that the backlog would be relatively level and then picking up in the second half? You don't know that, so I'm not (multiple speakers).

Yes, from what we can tell and where -- as we look forward, we believe so, because there is a process all these material have to go through to get to us. And there's a lot of risk in it because of permits, licenses, transportation, etc. So -- and contracts, but as we see it today, we see a pretty good pipeline out there.

And lastly, which you've discussed at length is the base budgets and the stimulus dollars which were fairly large which are supposed to flow through the system and may have affected some of the higher activity waste you're receiving. Do you have any sense as to how effectively those -- because in many other industries it's happening very slowly, how effectively those stimulus dollars are actually being put to work?

Not as fast as DOE would like but they are moving. Aand so as we look ahead, they're working -- DOE is working hard on the ARRA money to have it all committed by the end of 2011. Now that's just committed and not necessarily spent, so we see it flowing. We see a lot of the front end projects, terms of activity on site picking up, and a lot of those will generate waste. And so as we sit, we see it happening. It just will take time for a lot of that material to flow through to us since we're really the back end of the process. Which is good, because if we're doing well now, you'll continue to see waste being generated especially under ARRA money. And then the DOE budget looks real good for both 2010 and 2011 over the ARRA money, so as far as we can see ahead, there's funding going on.

And last question, assuming that money is spent, which will eventually produce stuff that comes over the fence and has to be treated, how much additional capacity when you're done with everything you're doing about some of the capacity it is enhancing capabilities -- sort of the capacity utilization versus how much bigger you could be if demand was there?

Well we have significant capacity, as our facilities are easily expanded with very little capacity because you've got an infrastructure and a footprint that to add a new unit, to add a bigger piece of equipment is very minor cost, and rather simplistic under our permits and licenses. So we see -- today it's hard to tell you what the utilization is because it changes every day depending on the waste coming in, but we could easily without doing a thing increase our -- we are probably at like a 70% utilization rate right now. Now some of the processes may be running full blast and other processes may not be working at all, but overall we've got plenty of capability to add a very significant amount of revenue just on the treatment side.

And then on the other side we're -- we see a lot of new projects starting up. We are making a lot of effort to be on more teams. Many of them are small projects, but with our -- with carrying now the resume that we have from our work with CH2M Hill, it is -- it has allowed us now to go after a lot of other services and a lot of other work like we're doing at Hanford.

Okay. Thanks a lot.

Okay.

(Operator Instructions). Our next question comes from [Ken Passada] from Globalwise Asset Management. Please proceed with your question.

Good morning, guys. All my questions have been answered. Thank very much. Good quarter.

Okay. Thank you.

Our next question come from Eric Almeraz with APIS Capital Advisors, please proceed with your question.

Hey Lou, I wanted to just ask you a question, there are a number of very high value barrels and you talked a little bit about it last quarter. Could you give us just an update on where that stands and is that part of the reason that nuclear was so strong this quart?

No. I think, we've been bringing in some high activity waste that comes with pretty high costs but it also comes with tremendous handling needs, more equipment. It really -- when I look at this, it's really not real complicated and it's basically the more revenue we can generate with our fixed cost really the higher the margins, because once you hit that fixed cost level, you get a pretty dramatic drop through of margin to the bottom line. So it's -- yes we've had some very expensive material come in, but it also comes with a need for the whole facility to be focused on a very small volume. But it really comes down into the end with revenue. If we can generate revenue, if we can generate material flowing through our facilities, you'll see very good returns.

Okay. And I'm just glancing at that call from last quarter, and part of the discussion around that was whether or not you would be able to -- how quickly you'd be able to recognize revenue from those drums. I guess there was the issue of how quickly you could get some of the handling equipment in place. Can you give us just an update on where you are with that?

Yes we're under construction at Oak Ridge now on our higher activity units there, and over the next several months, they should be complete, and everything is progressing. I mean, it's just more just going through the proper procedures. We had to make modifications to our licenses and then put the equipment in. And since we have several projects going on there in terms of upgrades, both on the organic process and on the high activity, there's a lot of activity. And it's also hurt our revenue there since we're not really hurting our processing abilities while we do these upgrades.

Okay.

So but it's going, there's no problem. Probably, into the second quarter we should start seeing processing of that facility starting to come back on-line with the numbers.

So just so I understand this quarter didn't have any particularly extremely high value items in it that really drove the out performance?

In the fourth quarter?

Yes.

No, it did. No, because the material comes in, we go through an acceptance process, an analysis, and with these higher activity drums very expensive to move them, to accept them, analyze them, and make sure what we have before we unload the vehicles, so there was a revenue recognized on that front end part.

Okay.

Yes.

Thank you.

Yes.

Our next question comes from Dennis Scannell with Rutabaga Capital Management. Please proceed with your question.

Good morning Lou and Ben, nice quarter.

Hi.

Just a couple things maybe to drill down again into the seasonality of the business. In terms of weaker first half of 2010, is most of that self inflicted by the upgrades at M&EC or is there actually something going on at DOE where they're holding back flows?

It's both, we see it all the time, you've got a -- even though DOE is flush with money, at the beginning of the year they always go through a process review, which slows things down. And you're coming off holidays where people come back and sit there and have to get reoriented, and you see just normal seasonality. And we've seen that consistently at DOE that you have a slower period at the beginning as they figure out what they're going to do for the year. They get the project started, and focused and it really doesn't start really kicking in until the end of the first quarter.

Okay. And then --

And also, though we are also down with one of our major treatment units, which limits our ability to process waste and recognize revenue.

But you would still be accepting waste streams.

Yes. We'd still be accepting (multiple speakers). Right.

Okay. Great. And then, again in terms of what you said about 2010, so the shape, if I heard correctly, the shape looks of the quarterly flow will look similar to 2009 but you do expect an up year or would you expect more flat kind of revenues and EBITDA?

Well, it really -- we've got a lot of new initiatives, and without the new initiatives, I would still expect it up. And depending upon when some of these new projects both with the on site work, with some of other high activity work, just how it hits and when it hits will depend how good -- anything above that, but right now we're expecting the year to be up.

Great. Then a couple -- just couple quick small things. Capital spending in 2009 was $1.9 million.

$1.5 million.

$1.5 million and then expectations forward 2010?

Similar, similar range. There might be a little bit of carry over from '09 a few hundred thousands -- a few hundred, so I would think $1.5 million to $2 million. Kind of the norm we always carry.

Great so even with the upgrade of M&EC we're not talking about big capital there.

Correct.

Now how much -- now for 2010 how much will the finite risk fund increase, how much cash will you have to put into that?

We will put in $2.1 million, which we've already done.

Great.

It is scheduled for the first quarter.

Excellent. A few other minor things. Ben, did you say that total debt ended the quarter at $12 million, was it 12.--

$12.3 million.

$12.3 million. How much of that was short current versus long-term?

Current was about $3 million and $9.3 million was long term.

So debt -- I mean, again, not to belabor the obvious, I was just looking at your 20 -- I'm sorry, the third-quarter Q, that's down from $20.9 million?

Correct.

Excellent. And then one last thing. I'm not sure I understood exactly with the taxes. So the NOL, did you say it was $13 million now?

It's about $14 million for Federal, it's also $26 million for State.

Okay.

Sort of separate but --

Okay. Great. And then going forward, does this mean you now accrue a tax rate -- a tax expense that you don't pay? Can you tell me what the taxes will look like from a GAAP standpoint and then also from a cash stand point?

That's correct. We will now be recognizing a tax expense in 2010.

Okay. Okay.

Though it won't be a tax hit because the NOLs obviously will still be there. What we really did was we recognized the value of those losses up front, and now we'll be accounting kind of more the way you should showing an income tax expense.

And would we kind of figure a rate of that you'll at least be booking around 35% or is there -- .

Yes, that's a pretty good estimate. We'll have a little -- we've got some assumptions to make based on whether there will be future deferred tax adjustment but between 35 and 40 range State and Federal together is about right.

Terrific. Well excellent job. I look forward to seeing the progress in 2010.

Thanks.

There are no further questions in queue at this time. I would like to turn the floor back over to Mr. Lou Centofanti for closing comments.

Thank you all. Like I say, it's been a very exciting year for us. We look onto 2010 and seeing another exciting and hopefully productive year. So I look forward to talking to you again after the next quarter, and giving you an update on our progress. Thank you very much.

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