Perma-Fix Environmental Services Inc (PESI) 2020 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Perma-Fix Fourth Quarter 2020 Conference Call. (Operator Instructions) Please note, this call may be recorded.

It is now my pleasure to turn today's program over to Natalya Rudman.

Thank you, Emma. Good afternoon, everyone, and welcome to Perma-Fix Environmental Services Fourth Quarter 2020 Conference Call. On the call with us this afternoon are Mark Duff, President and CEO; Dr. Lou Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer.

The company issued a press release this morning containing fourth quarter 2020 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Cresendo Communications at (212) 671-1020.

I would also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and include certain non-GAAP financial measures.

All statements on this conference call other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof and bear upon forward-looking statements.

In addition, today's discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance, a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website.

I'd like to now turn over the call to Mark Duff. Please go ahead, Mark.

All right. Thanks, Natalya, and good afternoon. We generated solid revenue growth and achieved profitability for 2020, despite the impacts of COVID-19 on our treatment segment. We attributed these results, the strength in our Nuclear Services segment and our ability to maintain fuel operations throughout the pandemic.

I'm very proud of the fact that Perma-Fix successfully implemented our revised COVID safety plan while continuing to meet the needs of our clients during a period of time, which they were largely working from their own homes. In addition, we have also improved our approach to worker safety and health programs in our plants and field operations throughout 2020, having achieved an important milestone of over 400,000 hours without an OSHA recordable incident. This milestone is significant in our business, as a safety record reflects the focus and dedication of our team to ensure conscientious work performance and in attention to detail, which directly drives productivity in the field.

Turning to our results. Revenue increased 43.5% over 2020, and we achieved an adjusted EBITDA of approximately $5.4 million, and net income attributable to common stockholders of approximately $2.9 million for the year. This is accomplished despite significant reductions in waste receipts associated with waste generator shutdowns over the last 9 months.

As we enter 2021, we're continuing to realize sustainable revenue in our Services Segment with waste receipts increasing, particularly in March, but will not likely get to normal levels until the June time frame due to the slowdown of waste generation activities and procurement announcements throughout the industry.

In general, Perma-Fix's performance in 2020 continues to reflect the improvements that have been made and implemented regarding our personnel and our supporting systems and technology offering and our business development organization. With total revenue for 2020 exceeding $105 million, this is the best year we've reported since 2012, which was a period in time that was enhanced by the Obama ARRA stimulus program.

Our 2020 EBITDA performance of over $5.4 million was our best since 2011. It's also worth noting, we've maintained SG&A costs at a level pace of around $11 million, which is within 10% of our 3-year rolling average, demonstrating our ability to maintain our variable costs and performance in a down market. Overall, Perma-Fix is bullish on our future based on the overwhelming volume of procurement we've submitted throughout Q1 and into and through Q2, as anticipated. Many of these procurements are directly aligned with our technologies and waste management solutions to provide us the opportunity to discriminate ourselves and remain competitive on both costing and management approaches.

With hundreds of millions of dollars in bids currently submitted within the last quarter, and awaiting award, we have a 6-month forecast of over $100 million in procurement and task orders to be bid through our existing IDIQs and anticipated projects on the horizons that we're just waiting for RFPs on.

We've been developing 4 or 5 proposals simultaneously throughout Q1, and have leveraged the new technical and management talent that's joined our firm over the past few years to integrate leadership and enhance approaches to solutions, both in the field and in our plants. While all these procurements are very competitive, and we don't predict the win rate, this type of action reflects a growing market and our capability to identify, position and develop responses and proposals for these opportunities.

In regards to general market conditions, Perma-Fix remains optimistic in our future growth plans based on our visibility over the next 4 to 6 quarters. This optimism is supported by our primary client, the Department of Energy, and the direction we're beginning to see regarding the waste management objectives and their policies.

A few of these highlights in regards to the industry would include our first repeated statements by the officials that have suggested carryover funds from the government from 2020 are beginning to become evident in the DOE facilities in the form of new projects that require fast responses and innovative solutions to address some of the larger challenges within the waste management groups. This activity has resulted in an increased number of proposals both for Nuclear Services and in the waste management, waste treatment side of the house.

Second, several large DOE procurements, including Oak Ridge closure and the integrated tank disposition contract, which is formerly known as the tank closure contract, which have been recently published for bid, include requirements for compressive waste treatment solutions as well as end state contracting models, which support innovation to technology applications to achieve success. In addition, these large bids with values in the billions include aggressive small business of contracting requirements for what they call meaningful work, which is defined as project-oriented scopes of work as opposed to staff augmentation types of support. This plays well into Perma-Fix offering to provide value-oriented solutions will remain a small business -- we will remain a small business for the foreseeable future as well.

And third, continued progress at Hanford regarding contracting decisions and opportunities to leverage our advanced capabilities to solve large-scale waste management problems at site. This includes our test bed initiative or TBI, which continues to offer a supplemental alternative to DOE to assist in the large waste tank disposition project at Hanford.

As we've stated in the past few quarters, Perma-Fix has built a very strong team of waste management and health with its professionals, along with staff that are dedicated to growth and innovation for our clients. This is evident by our most recent project, which was -- which addressed a release of radiological source with any research hospital in Seattle where Perma-Fix provided a complete recovery and release solution back to the public and to our clients.

We're expanding this experience and associated strength of other opportunities that we're currently bidding right now and have a great reference. This foundation and the supporting reference will continue to generate opportunities in our industry and provide unique solutions to our clients as well as we pull out of this unprecedented pandemic.

Completing another solid quarter while increasing revenue over 2019 and teeing up 2021 with positive momentum underscores the strength of our company and our ability to adjust our vision to meet market needs and changes.

On that note, I'll turn it over to Ben, who will discuss our financial results in a little more detail. Ben?

Thank you, Mark. Beginning with revenue. Our total revenue from continuing operations for the fourth quarter was $28.3 million compared to last year's fourth quarter of $22.1 million, that's an increase of $6.2 million or 28.4%. The increase, as you said, was led by our Services segment, where revenue increased by $10.8 million, over the prior year as the company continued to operate on numerous projects in both the U.S. and Canada. The increase was offset by a drop in our Treatment segment revenue of $4.6 million as waste receipts at our treatment plants continue to be impacted by the COVID-19 pandemic.

For the year ended 2020, our revenue was $105.4 million compared to $73.5 million in 2019. As with the fourth quarter, the Service segment was the main driver of this increase as revenue increased $42.2 million or 127.5%. Despite the ongoing COVID pandemic, our projects did continue to operate during most of the year, generating increased revenue, which offset the drop in our Treatment segment of $10.3 million. Following a strong start to 2020, the impact of COVID significantly impacted our waste receipts throughout both the second through the fourth quarters, resulting in a year-over-year drop in revenue of approximately 25%.

Turning to cost sold -- cost of goods sold. Our cost of sales was $25.2 million in the fourth quarter compared to $17.4 million in the prior year, an increase of $7.7 million or 44.3%. This significant increase in project work in the Service segment resulted in increased payroll, travel and subcontractor expense. Head count increased approximately 15% over the prior year, while per diem days paid increased by approximately 82%. Conversely, the Treatment segment lowered cost in transportation disposal and material and supplies related to processing approximately 31% less volume in the quarter.

Year-to-date, the cost of sales was $89.5 million compared to $57.8 million in 2019, an increase of $31.7 million or 54.7%. As with the quarter, increased project work resulted in higher payroll related costs for -- from 22% increase in headcount, a 121% increase in per diem days paid, over $15 million in subcontractor expenses and over $4 million in materials and disposal expenses. The Treatment segment processed 22% less volume, which resulted in lower transportation disposal and labor expenses.

Our gross profit for the quarter was $3.2 million compared to $4.7 million in 2019. The drop of gross profit of approximately $1.5 million was the result of a change in the revenue mix of 80% of the quarter's revenue was from the Service segment compared to 53% in prior year. Project work in the Services group is generally more competitive and brings lower margin than does the Treatment segment.

For the year ended 2020, gross profit was $15.9 million compared to $15.6 million in 2019. Again, despite the large increase in total revenue, the mix was 71% services work in 2020 compared to only 45% in 2019, which resulted in a small increase in gross profit, but a drop in gross margin from 21% to 15%.

Our SG&A costs were $2.8 million compared to $3.3 million in the fourth quarter last year, while G&A costs for the full year were $11.8 million compared to $11.9 million in 2019. Lower travel and trade show expenses, which occurred as a result of the COVID pandemic, and bad debt expenses were down, which offset increases in payroll and health insurance benefits.

Our net loss attributable to common shareholders for the quarter was $10,000 compared to last year's net income of $930,000. For the year ended 2020 -- December 31, 2020, net income attributed to common shareholders was $2.9 million compared to income of $2.3 million in the prior year.

Our basic income per share for the quarter was 0 compared to $0.08 in prior year and our income per share for the year ended December 31, 2020, was $0.24 a share compared to $0.19 in the prior year.

Adjusted EBITDA from continuing operations, as we defined in this morning's press release, was $709,000 compared to $1.7 million last year. And for the full year, adjusted EBITDA was $5.4 million compared to $5.2 million in 2019.

Turning to the balance sheet. Our cash was $7.9 million compared to $390,000 at the end of 2019. Our current receivables -- accounts receivable and unbilled collectively were up $3 million, reflecting the increase in revenue, primarily from the Service segment. Our current liabilities were up $7.9 million, reflecting the increased operations in the Service segment, timing of payments and the current portion of our PPP loan, which was not forgiven at year-end.

Our waste backlog was $7.6 million compared to $8.5 million at year-end 2019. Our long-term liabilities were up $1.3 million compared are primarily from the inclusion of the long-term portion of the PPP loan, which is yet to be forgiven. Our current debt excluding debt issuance costs was $3.6 million, with $427,000 due to our primary lender P&C Bank under the term loan and $3.1 million due to P&C for the PPP loan. Total debt for the year-end was $6.8 million, excluding debt issuance costs with $1.5 million due to our primary lender, P&C and the term -- for the term loan and $5.3 million for the PPP loan. Our working capital was $3.7 million compared to $26,000 at year-end 2019.

Finally, I'll summarize cash flow activity. Cash provided by continuing operations was $7.9 million. Cash used by discontinued operations was $499,000. Cash used by investing activities was $1.7 million, most of which was capital spending. Proceeds provided by discontinued operations was $118,000, which was primarily for the receipt of loan payments related to the sale of our former Michigan property.

Cash provided for financing was $1.9 million, consisting of the PPP loan of $5.3 million, less our monthly term loan payments of $420,000, our net payments to the revolver of $321,000. Our net payments to pay off a shareholder loan, totaling $2 million, and then other lease and financing costs of 800 -- or payments of $800,000.

With that, operator, I'll now turn the call over to questions.

(Operator Instructions) And we will take our first question from Howard Borus.

First of all, let me congratulate you on achieving $100 million in revenue. Mark, Lou, Ben, in spite of COVID and everything else. So first, congratulations. And also, Ben, congratulations on your joining the Board of Directors of progenesis -- Pyrogenesis, excuse me.

So first of all, and hopefully, everybody in the family as well and everyone in the firm, any COVID issues?

No, Howard, it's good to hear from you. No. Everybody is good. We have 0 COVID cases in the company right now, which that wasn't the case several months ago, but we are to 0 and many, many folks are getting vaccinated. So we're hoping to stay on top of that trend.

Good. Congratulations, Mark. I'm glad to hear that's critically important. In your announcement today, and I just want to address 1 issue. And I'm quoting from your announcement. Moreover, we are rapidly advancing several initiatives with the Treatment segment that we believe have the potential to significantly enhance our revenues, while establishing increased market share in large backlog for waste processing. Can you be a little bit more granular in terms of that comment?

Sure, Howard. Yes, we're always -- we always have initiatives going on each one of our plants to up break down and add new capabilities that would expand our inventories and our market share. So we have 1 opportunity going on at each one of our facilities now. We have a new program in Florida, putting in what we call vacuum thermal desorption. That will significantly increase our capability to take specific kinds of waste that are coming from DOE with limited competition. That's -- should be up and running by the end of the year, at latest, more like end of Q3. And that's running very well and very rapidly.

We're continuing to complete our construction program at DSSI. It's going to give us more storage capacity and allow us to expand our classified waste program, of which we have a good backlog that we have not received yet because we have done all the space in a classified area.

And then we also have expansion going on at our EWOC facility, some upgrades going along with that for several procurements that we have out, we're waiting here on. And we have some minor modifications going on up in Richland.

So altogether, I think that we could see an expansion to start realizing revenue in late Q3 and Q4, but really tee up 2022 for increased waste receipts along with those access to new technologies. We're also looking at -- we're also seeing increased activity on the international front with several new waste streams being teed up for shipment in the next quarter or so. We should start seeing some by the end of Q2 and getting some real sustainable waste streams internationally.

So we're excited about the waste treatment side of the house. It has taken a beating, as you know. It hasn't come back as fast as we'd hoped. But we are seeing just in the last 2 or 3 weeks, significant increasing shipments and notice of shipments and RFP activities, proposal activities, that give us a lot of optimism that we could be back to normal on waste receipts by the end of Q2.

Can you define better the financial opportunities rather than the general opportunities in terms of potential revenue? And let's talk about third, fourth quarter and importantly, 2022.

The fourth quarter is going to be tough to predict, maybe $1 million or $2 million, $3 million in revenue impact into this year. But we're hoping between $5 million and $10 million in additional revenue for 2022, as a base. That's along with a lot of other positive trends we're seeing on different existing capabilities, like our water system, we're starting to receive some water now. It took forever to get that whole program rolling. But it's going good now, and we're doing good on the water receipt side and processing side.

So between the VTD and the classified waste and EWOC, I don't think $10 million is a big stretch to assume for 2022.

And that's without any of the big opportunities that we've talked about in the past. Correct?

That's correct. That's just new waste receipts. Yes.

Right. Last but not least, but still in the same vein, you've heard nothing because I've heard nothing on the Navajo issue, have you?

We have heard nothing. Other then -- and we're supposed to be start seeing past quarters in any day kind of the thing. So we have nothing about new task orders yet.

Again, congratulations to yourself and the team on $100 million in revenue.

(Operator Instructions) We will take our next question from Chuck Dickerson.

Dickinson, that is. I wondered if you could talk in a little more detail or give a framework of how you're looking at translating or the opportunities to translate service work into additional treatment opportunities?

I mean, are we talking here about you go and you do some service work and you discover that there is treatable waste as sort of a byproduct of the service you perform that happened to come about? Or is it alternatively, a situation where the customers say, DOE or whoever is let's say, they're so satisfied with the service work that you perform. And if it's done reliably, then they come back to you and say, "by the way, we also have some treatment work we'd like to get to you as well." So how do you see that that translation unfolding from service into waste treatment opportunities?

Chuck, we do have several bids, several jobs, I should say, that have included extensive nuclear services work in the field that have resulted in shipment of waste to ourselves to process. The job of the Harborview Hospital, for example, we did the remediation packs the way we ship it to our facility in Richland, Washington, processed it and got rid of everything. We're full service, cut out a lot of inefficiencies. It worked really well.

Other projects, we'll typically do the remediation. And the waste may or may not require treatment. In other words, if it doesn't require treatment, it can be shipped directly for disposal in a landfill. That's normally the large volume of the waste we have, that's the case. But we're bidding on several jobs right now that does include some treatment into processing. If there's any way we can ship something like large components to our facilities and do the dismantlement off-site, we will do that. It doesn't always afford that opportunity.

But to answer your question, most of the time, it's 1 or the other either. They're doing the waste treatment or we're doing the services. And in the field, if you're doing the services, the nuclear services types of jobs, you're typically shipping the waste direct to disposal, and it doesn't have the opportunity for the treatment overall.

But what we do -- what we do is and where the real discriminator comes in for our company because we have the waste management people, the professionals, the engineers, that we put on the services projects that are able to manage the way to minimize the treatment as necessary and the packaging -- and optimize the packaging so that you can go directly to disposal and save money.

Okay. Great. The only other question I had was, do you have a sense of what percent of your workforce is in the field that has been vaccinated already for COVID? And is that sort of the key item to look at? Or is it more -- you have to look at vaccination across all of your client base as well? And maybe all this is academic come the end of May or June as you say, things are expected to start ramping up then? So maybe it's not a question that's really that important. But just kind of a curiosity as to what percent is already vaccinated.

Chuck, we'd -- I'd be just guessing. So we have not polled, we do plan on polling at some point just to see what percentage we're talking about, but we have not done that yet. In East Tennessee, here where we have about 1/3 of the company. It's running around 20% as a population. And so I have no idea where our folks are, I do know in my office here, it's much higher than that. And we have about 40 folks in our office, on the administrative side of the house. But as far as the plans go, I'd just be guessing, I have no idea, I'm afraid.

Okay. But the waste receipts that you're starting to see trend up, although not back to a normalized level, but starting to trend up a little bit in this month. That may have some correlation, I would guess, to people being vaccinated?

That's correct. I would assume that as well.

It appears, we have no further questions at this time.

All right. I'd like to thank everyone for participating on our fourth quarter conference call. As I mentioned earlier, we remain bullish on the outlook for the full year. We appreciate the continued support of our shareholders, and look forward to providing further updates as developments unfold. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.